Low APR car finance

Low APR rates – which reflect how much in interest and charges you have to pay – can be the key to good value car finance. Here’s how

By John Evans, Matt Rigby Dec 19, 2021

Annual Percentage Rate - known as APR - might sound like just one more thing in a catalogue of confusing car finance jargon, but it’s an absolutely crucial element to understand if you’re looking to take out a good value car finance deal. This is because it reflects what you get when you add up the interest rate at which the money for the car is being lent and any extra charges for the borrowing, which could include things like fees for taking out finance.

What you really need to remember, though, is one key point: the higher the APR, the more expensive your borrowing is going to be, as more is going to be added in interest costs and other charges. Keep reading to get your head around the ins and outs of APR and how it impacts the cost of car finance.

What APR calculations don’t account for are any extra optional charges such as payment protection insurance. The APR figure also doesn't take into account any charges that you might incur during a finance contract due to your own actions - such as fees for missed payments. As a result, it's important to ensure you are aware of the cost of any possible extras or other charges before you sign a car finance contract.

Having said that, the APR figure is still by far the most useful way to compare the cost of finance deals with one another - and lenders must publish these for finance deals such as Hire Purchase (HP) or Personal Contract Purchase (PCP) agreements. For example, the cost of interest and other compulsory charges on a 6.9% APR used car finance deal will be around half that of an equivalent 13.9% APR contract (assuming the same finance type, cash price, deposit and contract length).

There are two types of APR, and it's helpful to understand the difference. These are representative and personal. Representative APR is the rate you will see advertised, and lenders are only obliged to offer this to 51% of customers - you may fall into that 51% or you may not.

Personal APR is what you actually end up paying, and takes into account your own circumstances and your personal credit score. This could be the same as the advertised rate, though it may be higher.

How do you get low APR on car finance?

Getting a low APR car finance deal depends on several factors. Firstly you need to shop around to find a car that is available with a low APR deal. Secondly, you are likely to need a strong credit score to be able to take advantage of the best deals with the lowest APR figures.

Typically, the lowest APR car finance is available on new cars. This is because car manufacturers often subsidise the finance, with low APR finance effectively being offered instead of a discount on the cash price of a new car. However, remember that new cars have the highest cash prices, so while you may not pay that much in interest, the car itself is likely to be more expensive than an equivalent nearly new or used car.

As a result, you may be able to get a 0% APR finance deal - also known as interest-free credit - on a new car, though this will usually rely on you having a particularly strong credit score. Rates of 2.9%, 4.9% and 5.9% APR are more common. However, because you’re most likely borrowing more money overall than you would for an equivalent used or nearly new car, a low-APR deal for a new car can still cost you a lot overall.

So, although used car finance typically comes with higher APR charges than new car finance, the overall amount you pay may still be lower because the cash prices upon which any interest is charged are so much lower. As an example, BuyaCar typically offers finance from 6.9% to 9.9% APR on a broad range of nearly new and used cars, though even some car manufacturers charge as much as 14.9% APR or more on some used cars and those with lower credit scores may have to pay 25% or even 50% APR with some lenders.

Why is APR important?

No one wants to pay more in interest than they have to. Therefore, finding the lowest APR finance on the car you want should cut your bills. When thinking about APR it's important to bear in mind the cash price, too. That's because a low APR finance deal on a car with a high cash price can still prove very expensive - you're just paying more for the car itself and less of a premium for the finance.

Since how much interest you pay is not only affected by the APR figure, but also the amount you borrow and how long you borrow for, choosing a used car with a higher APR but a lower cash price could still save you money.

As an example, you'd end up paying the same in interest whether you chose a £20,000 new car with 5% APR finance or a £10,000 used car at 10% APR. The higher cash price, meanwhile, means that the new car ends up costing far more per month, as you've borrowed more money and have more to pay back, even if only a small proportion of this cost is made up of interest charges.

This means that to reduce the overall amount you pay in interest and reduce your monthly payments, you need to focus on cars with both a reasonably low cash price and a low APR figure.

New car finance: £20,000 car at 5% APR (36-month Hire Purchase contract)

Deposit: £0

Monthly payment: £598

Total amount payable: £21,543

Interest charged: £1,543

Used car finance: £10,000 car at 10% APR (36-month Hire Purchase contract)

Deposit: £0

Monthly payment: £321

Total amount payable: £11,543

Interest charged: £1,543

APRs for borrowers with a strong credit rating generally start at 6.9% on used cars. This is BuyaCar’s lowest rate. For the average borrower, BuyaCar’s APR is around 9.9%, although other lenders may charge notably more than this. At the time of writing Zuto, for instance, offers 10.9% APR for those with an excellent credit score, while some car manufacturers charge as much as 15.9% APR on used cars. People with a poor credit rating, meanwhile, may be offered anything from 29.9% APR to as high as 49.9%.

The higher the APR, the quicker interest racks up. Go for a longer contract with a high APR and even more interest mounts up. This is the case when the cash price of two cars with different finance offers is the same. If the car has a higher cash price, meanwhile, interest builds up even quicker, as you've borrowed more money.

Look at the table below for an indication of how higher APR charges can quickly increase both your monthly payment and the overall amount of interest you have to pay on a £15,000 car financed on Hire Purchase over 48 months. Since the lowest APR is available on new cars, remember that to take advantage of the lowest interest charges you typically have to purchase a new car, which increases your monthly payments.

Therefore, when comparing finance deals on new and used cars - or cars with different cash prices - it's worth getting like-for-like finance quotes (using the same type of finance with the same deposit, contract length and mileage allowance) to see not only which one costs the least in interest charges, but how the monthly payments compare.

APR Charge

Monthly payment

Total cost

Total amount of interest

0% NEW: Available on some new cars




2.9% NEW: Commonly available rate




6.9% USED: BuyaCar lowest rate




9.9% USED: BuyaCar typical rate




10.9% USED: Zuto lowest rate




15.9% USED: Citroen: some used models




29.9% USED: What Credit – poor credit




49.9% USED: Aspire Money – bad credit