If you’re applying for car finance, you may have already encountered several terms like HP, PCP, or APR. It’s important to know what these terms represent and what they mean are so that you fully understand what you’ll get out of your car finance from your chosen lender. In this post, we’re going to focus on APR and how you can get car finance with low APR.
Understanding Car Finance APR
So, what is an APR to begin with? APR stands for Annual Percentage Rate. The APR is the cost you pay each year to borrow money. These extra charges include those fees for taking out car financing.
It’s crucial that you know the APR of a car finance deal before signing the contract. When you’re still looking for deals, choose ones that have the lowest APRs because those deals can help you save money on your car purchase.
A key point to remember when looking for a car finance deal is if you find a high APR car finance deal, that means it is going to be more expensive for you. It’s best to move forward and keep looking.
Important Points About APRs
One of the things you have to know about APR calculations is that there are some fees that are not accounted for, like payment protection insurance and additional charges you may have to pay if you ever miss payments. That’s why you should know about the costs of possible extras such as fees and other charges before signing a car finance contract.
If you want to compare different car finance deals from various financing companies, you should look into the APR figure. The rate will tell you if the deal is any good. Pick the ones with the lowest APRs and take note of those car finance companies. If you do it this way, you’ll have an easier time comparing what different lenders offer.
Two Types of APRs
There are also two types of APRs, and it would benefit you to know and understand the difference between the two. The first one is called representative, and the second one is called personal.
Representative APR is what you see being advertised by car finance companies. These lenders are only required to offer this rate to 51% of their clients. So there is a chance that you may be offered this deal, or you may not.
Personal APR is the actual amount that you will be paying. It takes into consideration your circumstances, as well as your credit score. Your personal APR could be similar to the advertised rate. But in most cases, it is higher.
Why Your Credit Score Matters
There are many factors that will affect the APR that car finance companies offer you. That is why you first need to find various lenders that offer the lowest APR deals and then choose among them. It would save you both time and money.
APRs that lenders offer also depend on your credit score. Your score is an important factor in getting good car financing. An excellent score will allow you to get the best deals that have the lowest APR rates. But the rate you have to pay also depends on many factors, including the amount that you borrowed from the car finance company and the contract term length.
If you think your credit score is not that good, don’t worry because it’s still possible to get car finance at reasonable rates. You may also choose to wait a bit so you can improve your score so that you can get better car finance deals. You can do this by paying your outstanding debts and bills on time, registering to vote, and using your credit card less often, among others.
APR for New Cars
In many cases, car finance with low APR is available for new cars. It's because car manufacturers usually subsidise financing. They give out low APR car finance rather than a lower price tag or a discount for the new car.
But keep in mind that new cars are, of course, more expensive. So even if you don't pay so much interest, the car itself is going to be costly compared to a second-hand vehicle or an older model.
APR for Second-hand Vehicles
If you get car finance for a second-hand vehicle that comes with a higher APR rate, it's actually going to be more affordable since the car itself costs less than a brand new car. If your goal is to save money, this might be the route you’d want to take.
When you think about the APR, also consider the cost of the car. A low APR car finance deal on a vehicle that is expensive is still going to be costly for you. It would be more practical to select a used car that has a high APR, but a lower price. That will allow you to save more money.
Keep in mind that the higher the price of the car, the more it’s going to cost you for your monthly repayments since you borrowed more money. So if you want to reduce the overall amount that you have to pay for the interest, as well as reduce the amount for the monthly repayments, you would have to find a car that is affordable and a car finance deal with a low APR.
Every car buyer would want to get car financing with the lowest interest rate. That is why you need to find car finance with the lowest APR so that you can save money in every way you can.