Buying a car comes with its fair share of financial terms that can make your head spin. No worries, though! We’re here to simplify one of the most common terms you’ll hear – APR. It’s more than just fancy finance talk for interest. Let’s get you clued up on car finance APR.
Car Finance APR – What’s the Deal?
APR stands for Annual Percentage Rate. It’s all about the costs involved when you get a car on finance.
Think of APR like the yearly cost of your car finance deal. It includes the interest you’ll pay on your loan, the cash you borrowed, and any extra fees that might pop up. So, APR isn’t just about the interest – it’s the whole financial package, helping you see the real cost of your car finance.
Why Should You Care About APR?
By law, all credit agreements (like your car finance) must clearly show the APR. It’s not just a random number – it tells you the total costs of your car finance. This helps you know what you’ll be paying each month, making it easier to budget.
Knowing your APR also helps you compare different finance deals. You can see which one is right for you, instead of getting lost in a sea of numbers and percentages.
Two Types of APR: Representative APR vs. Exact APR
Now, onto some specifics. There are two types of APR – representative APR and exact APR.
Representative APR is the number you’ll usually see first. It’s like a rough guide, based on what the lender offers to at least 51% of their customers.
But remember, it’s just a guideline, not the final number. Your actual APR will depend on things like your credit rating and financial situation.
Exact APR is what you get based on your personal details. It’s more precise, so you can plan your loan and choose the best finance option.
What’s a Good APR for a Car?
It’s hard to pin down a ‘good’ APR because it depends on your personal situation. But, generally, a lower APR is better as it means you’ll pay less.
Good credit rating? You’re more likely to get a lower APR, which means less cost overall.
How Do You Work Out APR on a Car Loan?
Lenders follow a standard method to work out APR. You can find online calculators that give an estimate, but to get the real APR rate, you should let a professional do it.
That’s because a real APR rate needs a credit check. It’s probably easier to let the lender work out your APR.
Getting your lender to work out your car finance APR ensures the rate is accurate, and you won’t miss anything. It can also help you see how your APR might differ between different lenders.
The best way to find the right APR for you is to compare like-to-like quotes on different car models, using the same loan criteria. That way, you can see what every lender has to offer and pick the right APR for you.
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