How to Get Car Finance at a Low APR

When you're looking to buy a car, one of the most important factors to consider is the Annual Percentage Rate (APR). A low APR will reduce the overall cost of your finance agreement, making your next car more affordable. Car dealers have traditionally offered finance at higher APRs than the rest of the market, partly out of necessity (car retailing is not a high margin business) but mostly because they can.

.At Prefinance, we help you compare various car finance options from specialist brokers, aiming to find you competitive rates starting from 7.9% APR (representative APR 8.9%).

What is an APR ?

APR stands for Annual Percentage Rate. It's a standardised way of expressing the total cost of borrowing money over a year, including the interest rate and any mandatory fees. When you see an APR quoted for car finance, it gives you a clear picture of the true cost of the loan, allowing for easier comparison between finance providers, not products.

It is only truly useful for comparing like for like products. A PCP at 8.9% APR has higher interest charges than a HP agreement at 8.9% APR for the same balance.

A lower APR means you'll pay less in interest and fees over the term of your finance agreement. This translates directly into lower monthly payments or a reduced total amount repayable, saving you money in the long run. For example, on a £20,000 car finance agreement over four years, even a small difference in APR can amount to hundreds of pounds in savings.

It's important to differentiate between the interest rate and the APR. The interest rate is simply the cost of borrowing the principal amount. The APR, however, includes this interest rate plus any additional charges, such as arrangement fees. This is why the APR is generally a more accurate reflection of the total cost of borrowing. Car dealers will sometimes talk about the flat rate.

With hire purchase, you can easily work out the monthly payments from the flat rate. For example, if you borrow £20,000 at 4.6% flat rate (around 8.9% APR) over 4 years, then you will pay £20,000 x 4.6% interest for each of the 4 years. This is a fixed interest of £920 per annum x 4 = £3,680. So your total amount payable would £20,000 + £3,680 plus any option to purchase fees.

The way dealers make more money is basically to arbitrage from the current base interest rates. If for example the cost of money was 3.6%, and they are charging you 6.1% flat, circa 11.9% APR, there is a potential profit of 2.5% per annum, or 10% over the whole period. So that's a £2,000 commission available.

Typical the dealer will retain around 70% of that and the lender would also retain a healthier margin too.

Is this wrong? In our opinion, no. You are free to compare rates and either buy the dealer's finance or not. Our role at PreFinance is just to highlight the difference so you can make a choice. We will also make a commission per sale. It's just smaller!

Flat rate vs APR

Factors Influencing Your Car Finance APR

Several elements come into play when finance providers determine the APR they can offer you. Understanding these can help you improve your chances of securing a lower rate:

• Credit Score: Your credit history is the primary factor. A strong credit score indicates to finance providers that you are a reliable borrower, making you eligible for better rates

• Loan Amount and Term: The amount you wish to borrow and the length of your finance agreement can also impact the APR. Generally, longer terms might sometimes come with slightly higher APRs due to increased risk for the lender, though this isn't always the case.

• Deposit Size: A larger deposit reduces the amount you need to borrow, which can sometimes lead to a lower APR as the finance provider's risk is reduced. If you're wondering how much deposit you should put down, it's worth considering the impact on your APR.

• Balance to Finance: Some lenders or brokers have lower rates for bigger balances. For balances over £40k, for example, our rate is from 7.9% APR currently. Why? Some lenders prefer high quality, lower volume, high balance deals. Others prefer lower balances with bigger deposits. It all depends on the risk appetite of the lender and the market they want to be in.

• Type of Finance Product: Different finance products, such as Personal Contract Purchase (PCP), Hire Purchase (HP), and Lease Purchase, have varying structures and associated risks, which can influence the APR offered. You can learn more about PCP vs HP car finance to see which might suit you best.

• The Car Itself: The age, make, and model of the car can sometimes play a role. Newer, more desirable cars may often attract slightly better rates due to their lower risk. HP and PCP are tri-partite agreements- there are three parties involved, you, the dealer and the lender. The dealer sells the car to the lender who 'hires' it to you until you make the final option to purchase payment. The lender is on the hook for the quality of the vehicle as well as you, so they don't like older, higher mileage cars which can have quality issues.

• The Dealer's Commission: Dealer's usually set a percentage commission. This can change per brand or even per model. This has a direct influence on your APR. A high representative APR equals big commission for the dealer/salesperson.

Comparing Car Finance Products for Low APR

At Prefinance, we specialise in comparing PCP, HP, and Lease Purchase options from a panel of specialist finance brokers. Each product has its own characteristics, and understanding them is crucial for finding the right fit with a low APR.

Here's a quick overview of how these products typically work:

• Personal Contract Purchase (PCP): This is a popular option where you pay monthly instalments over an agreed term. A significant portion of the car's value is deferred to a final balloon payment (Guaranteed Minimum Future Value - GMFV). At the end of the term, you can return the car, pay the balloon payment to own it, or part-exchange it for a new one. PCP often offers lower monthly payments compared to HP for the same car and term. Find out more with our PCP Car Finance Explained guide.

• Hire Purchase (HP): With HP, you pay monthly instalments over a set period, and once all payments are made, you own the car. There's no large balloon payment at the end, making it a straightforward path to ownership. While monthly payments might be higher than PCP, you're paying off the full value of the car.

• Lease Purchase: Similar to HP, Lease Purchase aims for ownership at the end of the term. However, like PCP, it includes a balloon payment at the end of the agreement. This can result in lower monthly payments than a traditional HP agreement, but you'll need to settle the balloon payment to own the vehicle.

When comparing these products, it's not just about the lowest advertised APR. You need to consider the total cost, your monthly budget, and your intentions for the car at the end of the agreement. Our service helps you navigate these choices by providing comparisons from various specialist brokers, ensuring you see a range of options with competitive APRs.

Representative APR Explained

You'll often see "representative APR" advertised. This is the rate that at least 51% of customers are expected to receive. It's a useful indicator, but it doesn't guarantee that you will be offered that exact rate. Your individual circumstances, particularly your credit score, will determine the actual APR you are offered. This is why using a comparison service like Prefinance is so valuable - we can help you get an actual quote based on your details, giving you a precise APR.

For a deeper dive into how interest rates are calculated and what they mean for you, take a look at our article on Understanding Car Finance Interest Rates in the UK.

How Prefinance Helps You Find Low APR Car Finance

As a car finance comparison service and Introducer Appointed Representative (IAR) of specialist finance brokers, Prefinance is designed to simplify your search for competitive car finance deals. We are not a broker or a lender ourselves; instead, we act as a tool to help you compare and save.

Here's how we work to help you secure a low APR:

1. Access to Specialist Brokers: We connect you with a panel of specialist finance brokers who have access to a wide range of finance products and rates. These brokers are often able to secure more competitive rates than you might find by going directly to a single lender or dealership.

2. Comprehensive Comparison: Our platform allows you to compare PCP, HP options side-by-side. This transparency empowers you to see the differences in monthly payments, total cost, and the APR, enabling you to make an informed decision.

3. Competitive Rates: Our specialist brokers offer rates from 7.9% APR, with a representative APR of 8.9%. This means a significant portion of our customers are offered these competitive rates, helping you keep the cost of your car finance down.

4. Streamlined Process: We aim to make the process as straightforward as possible. By providing your details once, you can receive multiple quotes, saving you time and effort that would otherwise be spent approaching numerous providers individually.

Using a service like Prefinance can be particularly beneficial when you're looking for finance for specific brands. For example, if you're interested in Audi finance, BMW finance, or even Porsche finance, we can help you compare options tailored to those vehicles.

Here's an example of how different APRs can impact the total cost of a £25,000 car over a 48-month term with a £2,500 deposit (PCP example with a £10,000 balloon payment):

Figures are illustrative and do not include any potential fees. Actual payments and total amounts will vary based on individual circumstances, specific finance product terms, and the GMFV.

As you can see, even a percentage point difference in APR can add up over the term of the agreement. This highlights the importance of comparing options to find the most competitive rate available to you.

Another way to potentially secure lower interest (not a lower APR) is by considering the term of your finance. While longer terms can reduce monthly payments, they often result in paying more interest overall. Conversely, shorter terms might have higher monthly payments but could lead to less interest paid. It's a balance between affordability and total cost.

This table provides a general illustration. Actual APRs and their relationship with term length can vary significantly between finance providers and based on individual credit profiles.

Getting Your Car Finance Quote

Ready to see what competitive APRs you could be offered? Getting a car finance quote through Prefinance is a straightforward process. We'll ask for some basic information, and then our specialist brokers will assess your details to provide you with personalised finance options. This allows you to see the actual APRs you're eligible for, rather than just representative rates.

Remember, our goal is to help you compare and save. By putting you in touch with specialist brokers, we aim to help you find car finance with a low APR that suits your budget and circumstances. Don't settle for the first offer you receive; explore your options and make an informed decision.

For more detailed information on the process, read our guide on Getting a Car Finance Quote.

Drive a Lower APR

Prefinance is here to help you lower your finance rate, connecting you with specialist brokers offering competitive rates from 7.9% APR (representative APR 8.9%). We empower you to compare PCP, HP, and sometimes Lease Purchase options, ensuring you have the information you need to make a confident decision.