5.8% a month, £2,160 total
Representative APR
5.8%
Total interest
£2,160
What the deal really costs
- Amount financed
- £18,000
- Total of payments
- £20,160
- Total payable (with deposit)
- £22,160
APR turns a monthly figure into a yearly cost you can compare. A lower monthly over a longer term usually means more total interest, not a cheaper deal.
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How we work this out
We solve (numerically) for the monthly interest rate that makes the present value of your scheduled payments (and balloon, if any) equal the amount financed, then annualise it: APR = (1 + monthly rate)^12 − 1. Total interest = total of all payments + balloon − amount financed.
This is the APR implied by your figures. A 'representative' APR is different: it's the rate the lender expects at least 51% of accepted applicants to get, and the rest may pay more. FCA CONC 3.5 rules require an advert that quotes a rate or a cost figure to show a representative APR.
Full method: how we calculate.
APR (Annual Percentage Rate) is the yearly cost of car finance, including the interest and any compulsory fees. This car finance APR calculator turns any monthly quote back into an APR and shows the total interest, which is the true cost behind the headline monthly payment.
APR is the single number that lets you compare finance deals fairly. Two deals with identical monthly payments can have very different APRs once you add up the term, the fees and the balloon, and the deal that looks cheaper often has the higher total amount payable. APR reduces all of that to one annual figure. Enter the amount you're borrowing, the monthly payment and the term in the calculator to see the APR and the total interest.
What is APR on car finance?
APR (Annual Percentage Rate) is the yearly cost of borrowing, including the interest and any compulsory fees. It's the one figure designed to let you compare deals fairly, whatever the headline monthly.
Lenders must quote an APR under FCA rules, and they must include any compulsory fees in it. That's what makes APR different from a 'flat rate' or 'interest rate' on its own: it bundles in the whole cost of the borrowing, not just the headline interest.
There are two APRs you'll see: 'representative' and 'personal'. A representative APR is the rate the lender advertises and must offer to at least 51% of accepted applicants; the other 49% can be charged more. A personal APR is the actual rate you're offered after a credit check. Always check the personal APR, not the headline one.
Is APR the same as the interest rate?
No. APR includes the interest rate plus any compulsory fees, so it's usually higher than the nominal rate and often close to double a flat rate. Quoting only the interest rate hides the fees.
A flat rate looks lower because it's charged on the original balance for the whole term, not on the reducing balance. A flat rate of 5% on a loan you pay down over time is roughly a 9 to 10% APR. That's why dealers sometimes quote the flat rate: it sounds lower. Convert one to a true APR with the flat rate to APR converter.
Flat rate vs APR
Why a low monthly can cost more
A lower monthly usually means a longer term, and a longer term adds more interest, even at the same APR. The deal with the lowest monthly is often the one with the highest total amount payable.
This is the core trap of car finance. Lengthening the term lowers the monthly but multiplies the number of months over which interest is charged, so the total interest rises. A lower monthly and a higher total cost often go hand in hand, and the gap can be hundreds or thousands of pounds.
| Term | Monthly | Total interest | Total payable |
|---|---|---|---|
| 3 years | ≈ £569 | ≈ £2,473 | ≈ £20,473 |
| 4 years | ≈ £444 | ≈ £3,319 | ≈ £21,319 |
| 5 years | ≈ £370 | ≈ £4,187 | ≈ £22,187 |
| 6 years | ≈ £321 | ≈ £5,077 | ≈ £23,077 |
Worked example: term matters
What's a good APR for car finance?
A good APR depends on your credit: strong credit can mean single-digit APRs, while a thin or poor file pushes the APR into the high teens or higher. There's no universal 'good' APR.
As a rough guide, prime borrowers (strong credit) are offered the lowest APRs, near-prime borrowers pay noticeably more, and sub-prime (poor credit) APRs can run far higher. Interest-free (0%) dealer deals exist but usually replace a cash discount, so they're not always as free as they look.
Your credit score is the biggest lever on the rate you're offered. Improving it before you apply (fixing errors on your file, paying down balances, getting on the electoral roll) can cut the APR and the total amount payable substantially.
Representative vs personal APR
A representative APR is the advertised rate offered to at least 51% of accepted applicants; a personal APR is the actual rate you're offered after a credit check. Always compare on the personal APR.
The representative APR is a marketing figure. If your credit isn't in the strongest band, you may be in the 49% who are charged more, sometimes much more. A 'soft search' eligibility check (which doesn't affect your credit file) can show your likely personal APR before you apply in earnest.
How to get a lower APR
You cut the APR with a bigger deposit, a shorter term, a stronger credit score, and by comparing offers. The first three are in your control before you apply.
- Bigger deposit: borrow less and the lender takes less risk, so the APR often drops.
- Shorter term: less time for things to go wrong, so lenders charge less, and you pay interest for fewer months.
- Stronger credit: fix errors, pay down balances, get on the electoral roll, and avoid new applications before you apply.
- Compare offers: a soft search with several lenders shows your personal APR from each without denting your credit. See cheapest car finance and 0% deals.
Your right to compare fairly
APR on PCP vs HP vs loans
The APR works the same way across PCP, HP and loans, but the structure changes how much interest you actually pay. A lower APR doesn't always mean a lower total amount payable if the structure carries a big balloon.
On PCP you pay interest on the optional final payment (the balloon, set at the GMFV) for the whole term. That means a 9.9% APR PCP can cost more in total interest than a 9.9% APR HP on the same car. Always compare the total amount payable, not just the APR: the APR tells you the rate, and the total tells you the cost.
APR vs flat rate vs interest rate
APR bundles in the interest plus compulsory fees and reflects the reducing balance; a flat rate is charged on the original balance for the whole term; the 'interest rate' alone excludes fees. They can differ by a factor of two.
These three terms get used loosely and that's where most confusion (and most mis-selling) happens. The nominal interest rate is the headline rate the lender charges, and it ignores fees. A flat rate is a quoting convention used on some HP deals. The lender takes the annual interest on the original amount, multiplies it by the years, then splits it evenly across the months. Because it ignores that you're paying the balance down, it looks roughly half the true APR. APR is the regulator's answer to that confusion. It includes fees and reflects the reducing balance, so it's the one figure that lets you compare unlike products fairly.
As a rule of thumb, a flat rate of 5% is close to a 9 to 10% APR. So when a dealer quotes '5% flat', mentally double it before comparing it to a loan's 8.9% APR. FCA rules require the APR to be shown prominently in advertising precisely to stop flat-rate quoting from misleading customers, but flat-rate quoting still appears in conversation and on some paperwork.
| Rate type | Quoted as | Monthly | Total interest |
|---|---|---|---|
| Flat rate | 5% | ≈ £450 | ≈ £3,600 (rate looks low) |
| Nominal interest | 9.9% | ≈ £452 | ≈ £3,695 |
| APR | 9.9% | ≈ £452 | ≈ £3,695 (true cost) |
Always compare on APR
Reverse-APR: turning a monthly back into a rate
If you only know the monthly payment, the term and the amount borrowed, you can work backwards to the APR, and that often shows the true cost is far higher than the headline. The car finance APR calculator on this page does that maths for you.
Lenders sometimes lead with a monthly ('just £299 a month') and bury the APR in the small print. To reverse-engineer the rate, you find the monthly interest rate that makes the present value of all your payments equal to the amount financed, then annualise it. It's the same maths the calculator above runs: enter the amount you're borrowing, the monthly and the term, and it returns the APR.
This matters because two dealers can quote the same monthly on the same car and have very different APRs: one might be quoting over 36 months, the other over 60, or one might have folded a fee into the balance. The reverse-APR exposes the difference instantly.
Worked example: reverse-APR
Total interest: the number that actually matters
Total interest is the sum of every pound of interest you'll pay over the whole term, and it's the figure that exposes a 'cheap' monthly. APR tells you the rate; total interest tells you the cost in pounds.
A 9.9% APR sounds like a single number, but it produces very different totals depending on the term and the structure. On £18,000 at 9.9% APR, a 36-month HP costs about £2,750 in interest; stretch it to 72 months and the interest more than doubles to around £5,670: same car, same APR, twice the interest. That's the monthly-vs-total contrast at the heart of the True-Cost rule.
When you compare deals, write down the total interest for each before you look at the monthly. The calculator above gives you that figure from the amount borrowed, the monthly and the term. The deal with the lowest monthly almost never has the lowest total interest, because the lender simply spreads the same (or more) interest over more months.
| Term | Monthly | Total interest | Total payable |
|---|---|---|---|
| 36 months | ≈ £576 | ≈ £2,750 | ≈ £20,750 |
| 48 months | ≈ £452 | ≈ £3,695 | ≈ £21,695 |
| 60 months | ≈ £378 | ≈ £4,670 | ≈ £22,670 |
| 72 months | ≈ £329 | ≈ £5,669 | ≈ £23,669 |
Common APR mistakes
The expensive mistakes are comparing on monthly, trusting the representative APR, ignoring fees folded into the balance, and confusing flat rate with APR. Each adds hundreds of pounds to the cost.
- Comparing on monthly, not total: the lower monthly is usually the higher total cost. Always read the total amount payable line.
- Trusting the representative APR: the lender only has to expect at least 51% of accepted applicants to get it. Check your personal APR before you commit, because it can be materially higher.
- Letting fees get folded in: a '£250 arrangement fee' added to the balance accrues interest for the whole term. Ask for fees to be itemised and compare on the APR that includes them.
- Mistaking flat rate for APR: a 5% flat rate is roughly a 9 to 10% APR. Always confirm which you've been quoted before you compare.
- Ignoring the balloon on PCP: a 'low' 7.9% PCP APR can cost more total interest than a 9.9% HP, because the balloon accrues interest for the full term. Compare totals, not rates.
Your right to clear APR information
Frequently asked
What is APR on car finance?
Is APR the same as the interest rate?
Does a lower monthly payment mean a cheaper deal?
What is a good APR for car finance?
What's the difference between representative and personal APR?
How do you get a lower APR on car finance?
Does a 0% APR car finance deal really cost nothing?
What's the difference between flat rate and APR?
How do I work out the APR from a monthly payment?
Is the representative APR the rate I'll actually get?
Sources
We cite regulators and official UK sources only.
- FCAfca.org.uk
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