Auto Trader cars

Skip to contentSkip to footer
Guide

Annual Percentage Rate (APR) explained

Your guide to what APR interest rates mean for car buyers, what a good APR rate looks like, and how to find good deals on car finance interest rates.

Last updated on 30 July 2024 | 0 min read

When you're looking for car finance, you may come across quotes for 'APR' and 'flat rate' interest. Here, we’ll look at what they both mean and how you can use them to find the best deal on your car finance.

What are interest rates?

When you borrow money from a lender, you normally pay interest on your repayments. Interest is extra money you have to pay the lender you borrowed it from.
The interest rate tells you how much more you have to pay over and above the amount you borrowed. Interest rates are commonly shown as a percentage of what you borrow, for example you’ll pay an extra 4.5% back.

What is APR?

With annual percentage rate (APR), you pay a set amount of interest on your remaining debt. You don’t have to pay interest on any amount you’ve already paid off so your APR interest payments will decrease as you pay off more of your outstanding debt.

APR interest explained

APR will stay fixed through your loan, but you’ll only pay interest on the remaining amount of your outstanding debt so, your interest payments decrease as you pay your debt off.
The APR also takes extra costs and fees (like admin charges or insurance) into consideration, but it only includes compulsory charges. This means things like payment protection insurance (PPI) aren’t included in the APR, so you should always check the contract for any non-compulsory charges. All loans issued in the UK, including car finance, must be presented with an APR. So, if you’re looking to make a fairer comparison between deals, you can use the APR.

What’s the difference between representative APR and personal APR?

Representative APR is used in the advertising of finance offers to give consumers an idea of the APR likely to be available to them if they apply with a provider. The representative rate advertised must be the rate that 51% of applicants are offered. That does mean, however, that 49% of those accepted will not receive the representative rate advertised. This is because the rate you are offered (the ‘personal’ APR) will often depend on your personal circumstances, for example, your income, employment and credit history.
Personal APR is the rate you actually pay.

What is a good APR?

The best interest rates are the ones you can afford to repay every month. Always check your contract and budget to ensure you can make monthly payments.
APR can be anything from 5% to 30% and, generally, the higher a deposit you put down, the lower your APR interest will be. Your credit rating can also affect your personal APR. If you have a higher credit rating, you could be offered lower interest rates. If you want more information on credit ratings and interest rates, visit free and impartial sites like Money Helper or Citizen’s Advice.

What is 0% APR?

Some car finance deals are advertised as 0% APR. These are called interest-free loans, because you don’t pay any interest on your monthly payments. Instead, your money goes directly to paying off the car.
You’ll need a very strong credit rating to qualify for 0% APR deals. You may find the monthly repayments for 0% APR deals are higher than deals with low APR, because 0% APR deals are shorter, so you’ll make fewer, bigger monthly payments. Learn more about 0% car finance deals.

How to get the best deal

When comparing car finance deals, use the APR or Rep APR for a direct comparison. UK lenders are legally required to provide the APR. Bear in mind that representative finance examples are not a guarantee of the finance you will be eligible for – you could receive a higher or lower APR that this example based on your circumstances.

Learn more about car finance

Find cars available on finance near you and learn about the types of finance available on our finance hub.