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What Are The Best Rates For Car Finance?

What is a good car finance rate if you’re looking to purchase a car? Before you sign a car finance deal, it’s important to know the interest rate you’ll be paying. One of the most crucial terms you need to understand when it comes to car finance is the annual percentage rate or APR. Let’s delve deeper to understand what it means and how it works. 

Understanding APR

So, what is an APR? It is the annual rate at which all of the costs for purchasing the car is included. This involves how much interest you need to pay every year for the amount of money you borrowed to buy a car. Essentially, it is the cost of borrowing money from a car finance company for your car purchase. 

When you know the APR of a car finance deal, it’s easier to compare different deals from various lenders. Before you choose a specific car finance company, it would be wise to get their APRs first and compare them against each other. 

The annual percentage rate is not the same as the interest rate. The APR includes all charges and fees so you’re getting a more accurate amount you need to pay the car finance company. 

There is a term called representative APR that lenders use in providing car buyers with an estimate or average amount that needs to be paid. Keep in mind that since the representative APR can only provide you with an estimate, the final amount may differ. Nonetheless, it can give you a good idea of the cost so it will be easier to compare deals.

What is a Good Car Finance APR?

If you’re looking for the best APR for car finance, there is no exact number for this but go for the lowest one you can find. APRs are based on your credit rating, and each lender will evaluate your car finance application differently. 

While you may not be able to get the exact amount before everything is finalised, there are ways that you can get an estimate for the interest you need to pay. The APR will also rely on what kind of car finance agreement you’ll choose. 

Personal Loan APR

You may have seen car finance deals being advertised with APRs at around 3%. This rate is common with personal loans and for clients with excellent credit scores. Personal loans are unsecured so the cash will go directly to your account, and you can then buy a car. Unlike HP or PCP, the loan is not secured against the car. Some car buyers prefer this type of financing where they own the car immediately after paying the car dealer. 

Mortgage Car Finance

Car buyers have the option of adding the cost of a new car into their mortgage. They can apply for an additional mortgage against their property that they can use to buy a car. If this is what you plan on doing, then you should know that the payments will be secured against your property. It would also add to the length of your mortgage term, which could mean a very long time. If you calculate the interest you’ll be paying for the loan, this route is actually among the most expensive options in financing a car. 

Common APRs for Car Finance

The most common car finance agreements are Hire Purchase and Personal Contract Purchase. If you have an excellent credit score, then you may expect APRs ranging from 6% to 11%. The rate could get better if you can haggle and get a good bargain, too. If you only have a good credit rating, you may have to pay an APR from 12% to 20%. 

For car buyers with low credit scores, the range for APRs starts at 20% and can even go up to 50%. For those with really bad credit records, then the number will just get higher. Of course, getting a guarantor is always an option. The APR is usually about 45% to 50% for guarantor car financing. 

Why the APR Matters

Car buyers have different credit scores, and therefore, they are offered different APRs for their car finance deals. The best way that you can get a good deal with low APR is to improve your credit score. It may take some time but it will be worth it. 

If you borrow £10,000 with an APR of 7% and a contract term of five years, you will be paying £1,880 in interest. However, if you have a bad credit rating and the APR you get is 50%, you’re going to pay £17,360 in interest. That’s a lot of money that you could save if you work on your credit score first.

Takeaway

When you already have a good credit score, make sure to spend as much time as you need researching the best car finance companies in the UK. Don’t be in a rush to sign a deal, especially if the car finance representative is too persuasive. It’s important that you check the APRs of different lenders for various car finance agreements first, so you can make sure you are getting the right deal for you. 

Learn as much as you can about each car finance deal before you choose one. Talk to the lender if you have any questions about their services. Don’t hesitate to ask if something is unclear. Also, check their reviews online from previous customers so you’ll get an idea of what it’s like to do business with them. This will prepare you to be in the best position to bargain for a better deal. Check out your month payments with our car finance calculator.

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