What is APR?

Have you ever seen the term APR and wondered what does that actually mean? When looking or car finance this is a term that pops up quite often alongside terms such as interest rates and representative APR, but how does it affect you and your money, and how can you use it to get yourself the perfect deal.

This is a little guide to what APR is and how it works.

So you are shopping round for a upgrade on your car, there’s lots of different options. Are you looking at buying the car cash or are you looking at finance options. If you are looking at finance options then what type of deal are you looking for, is it HP or PCP etc. When borrowing money there is an interest rate added to the lend.

A lot of lenders will ask for interest on top of the money you have borrowed, it is usually a percentage that is added to the total sum of the money you are borrowing. The payments made are usually monthly, and are agreed to suit your own situation.

It’s a similar too when you have a saving account and its high interest so can earn interest on the funds set in, it is based of a percentage.


Annual percentage rate is what APR stands for and it is  usually reflective of the annual cost of the money borrowed. this not only includes the interest added but it also includes any added fees that are usually included when getting finance. This is inclusive of things such as arrangement fees as well as other fees.

APR can vary from all the different lenders, but no matter what lender you end up with they have to explain what the APR is before anything is signed regarding the agreement. This is to ensure you know exactly what you are agreeing to when it comes to car finance. With all agreements, all the charges are included into the full price so knowing the APR makes it much easier for you to the go out and compare loans options with other loaners until you find the preferred option for you.

The APR rate usually includes the compulsory charges and so when getting car finance you may find that there are additional fees such as a possible PCP balloon payment. the best way to combat this is to ensure you check your terms and conditions and ensure you know all the extra fees that may come into play when buying a car on finance.

Variable and fixed APR, what is the difference?

There is a difference between the variable and fixed APR. If you want an APR that is fixed and means you know exactly how much you are going to be paying monthly then a fixed APR would be your best choice. Whereas if you want your APR to change as the market changes then a variable APR may be the choice that best suits you. It is all about what is the best for your situation.

Representative APR

when looking at car finance you will probably come across the term representative APR. What does this mean and what exactly is it representing?  The representative APR is used as an indication of the amount you might have to pay on a loan. This can change as it is only an indication of the amount you’ll pay, in other words the representative APR may be different what you actually pay but you will always be informed of the amount before anything is signed anyway.

Representative example

A representative example is another tool that you can use to gage how much a loan for car finance may cost you for repayments. It’s a good indication.

The example must have the rate of interest included and whether its fixed or variable, the amount the whole loan costs and any charges that are included with the loan. The example will also allow you to find details of the representative APR, the length of time the loan will be taken out for and if there is any balloon payments at the end. This will give more indication of the monthly payments. If you are unsure you can always ask the finance company your considering on taking a loan out with.

What can affect your APR?

There are a few factors that can really affect you APR, This does include your credit score. Credit score is really important and this is often reflected when lenders look at your application, so if you have a really good credit score then the chances are the APR will reflect this and so will likely be a smaller percentage whereas if you have bad credit it means the percentage may be higher, it’ll be a higher rate to reflect that having bad credit usually means you are risk to lenders.

Having bad credit isn’t something to worry about though and is an area we can try and help you out. This is an area that we specialise in and have had great success and try our best to get you the best deal.

The Car Finance Companies provide you with a massive selection of used cars and vans. We are based in Liverpool, Merseyside but can deliver UK wide. Check out our stock range and give us a call on 0151 523 4000 to get started on getting that dream car today!