Want to know about interest rates and car financing. Find out here…
What are interest rates and APRs in car financing?
APR (annual percentage rate) in car financing is a very important factor to consider when buying any vehicle through a car financing scheme. The APR is the interest rate you pay when making the repayments on the money you borrow.
In this article, we’ll take an in-depth look at how interest rates and APRs work in car financing by answering common questions.
Understanding interest rate and APR in car finance terms
When you’re in the market for a new car which you want to buy on loan or through a car financing scheme, it’s important to take two very important factors into account: interest rates and APRs.
Both play a governing role in determining what percentage your monthly payments will be, and whether or not those payments actually fall within your budget. However, before anything else, it’s important to know how APRs and interest rates work in car finance, and what is a good APR or interest rate to begin with.
By answering the most commonly asked questions about car finance interest rates and APRs that people typically have, the concept should be understood well enough to help you confidently get that car on finance that you’ve had your eyes on for so long.
What is low interest car finance?
The rate of interest essentially decides how much you will be paying the lender, apart from the actual cost of the car. So, the lower this interest rate, the more affordable your repayments will be.
However, it’s important to have a good credit score or rating to begin with, in order to access these low interest rates. Your credit score also affects the total amount you’re eligible to borrow, as well as the length of your loan and the size of your deposit.
You can research to find the best available deals at the moment in order to find an interest rate that you are comfortable paying. If you do this, you can bet your monthly payments will stay as low as possible.
Call us now on 0330 174 8540 for a no obligation discussion
WhatsApp on 07535 812 049
What does APR actually mean?
Annual percentage rate (APR) in car finance is basically the cost of financing the car you want to own. This includes the interest applied on the loan, along with the other associated fees and charges. Car financing companies tend to calculate the APR through a standard or fixed method, making it easy for you to compare the variety of offers available in the market.
Is there such a thing as car finance and low APR?
There is – when you’re in the market looking for car finance deals, it’s best to choose one which offers the lowest APR. This means that the deal will help you save money when you purchase your favourite car.
APRs come in two forms: representative and personal.
The former is what is advertised by the car finance company, while the latter is the actual amount you must pay. Again, having a good credit score means that car finance deals with the best APRs will be accessible to you.
What does the “representative” actually mean in representative APR?
Naturally, not everyone will have the same credit score or rating, so that means that different APRs will be available to them. In order to keep things fair to everyone, representative APR takes into account the amount a lender is offering to 51% of the population.
So, for instance, a car loan scheme that is offering finance at an 10.9% representative rate means that 51% of the population who are eligible for this loan will receive it at this rate.
Call us now on 0330 174 8540 for a no obligation discussion
WhatsApp on 07535 812 049
Is it possible to get car finance at no or zero interest rate?
Well, there may be a small handful of zero interest car finance schemes you might be able to take advantage of, but they are usually on brand new cars only. Plus, you’ll find that some dealers offer “zero interest” deals just to attract as many buyers as possible to purchase a newly unveiled make or model.
In any case, to qualify for zero interest car finance schemes, you must have an excellent credit score or rating, while also demonstrating that you are financially able to make the monthly repayments on time. Plus, in most cases, you’ll be expected to pay a higher deposit than the ‘market rate’ and agree to a shorter timeline for repayments.
What qualifies as a “good” car finance percentage or rate?
Ideally, you’d want this to be as low as possible. With that said, if your scheme offers a car finance interest rate of 10.9% or lower, then it’s fair to say that you’re getting a pretty good deal. Ultimately, the rate you get (again) depends on your credit rating and the amount your lender is willing to offer.
Also, as a general rule of thumb, keep in mind that car finance rates should not exceed 10% of your monthly income.
How is APR in car finance calculated?
APR in car finance is calculated with several factors in mind, including the length of the loan, the amount you want to take, and your credit score. So, the better or higher your credit score, the lower your APR will be.
However, the amount you’re interested in borrowing will also affect your APR. But, this isn’t always the case, which is why it makes sense to compare rates from different lenders.
And, at last, the loan’s length will affect the APR. So, the longer the loan contract, the higher the APR will be typically. This is because over a longer loan term or contract, higher interest will accrue over time.
What’s the best way to ensure that I get a good APR on car finance?
Good question!
As mentioned earlier, try to maintain a great credit score, borrow an amount that is reasonable, and try to choose a shorter loan term over a longer one. Additionally, shop around and you’re sure to find the best deals on car financing.
Liber Financial prides itself in offering highly competitive APRs and interest rates on used as well as new prestige and luxury vehicles. Our personalised car finance service unlocks access to the largest selection of prestige and luxury cars across the UK, all available at a car finance scheme to suit your requirements and budget. Call now to find out more.
