Defined

What Is APR?

IndependentWe sell no financeNo commissionMaths based on FCA rules & the Consumer Credit Act 1974

APR (Annual Percentage Rate) is the yearly cost of borrowing, including the interest and any compulsory fees. It's the one figure that lets you compare car finance deals fairly, whatever the monthly payment.

APR rolls the interest rate and any mandatory charges into a single yearly percentage. Lenders must show a representative APR by law, so it's the fairest way to compare two deals — far more reliable than the headline monthly.

How APR works

APR turns the rate and fees into a percentage you can compare like-for-like, but the actual pounds you pay also depend on the term. A longer term means more interest, even at the same APR.

A lower monthly payment usually just means a longer term — so the cheapest-looking deal is often the most expensive overall. Always compare on the total amount payable, not the monthly. APR is different from a flat rate, which looks lower but isn't comparable.

A worked example

On a £20,000 car with £2,000 down over 48 months at 9.9% APR, HP costs about £452 a month and £23,695 in total — roughly £3,695 of that is interest.

Worked example

Drop the APR or shorten the term and the interest falls. Turn any monthly quote back into an APR, and see the total interest in pounds, on the APR & true-cost calculator.

Frequently asked

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 figure that lets you compare car finance deals fairly, because it captures more than just the interest rate or the monthly payment.

What is a good APR for car finance?

There's no single good number — your APR depends on your credit file, the lender and the deal. Whatever rate you're offered, compare it against others on the same car and term, and judge it on the total amount payable, not the monthly.

Is APR the same as the interest rate?

No. The interest rate is just the cost of the money borrowed. APR also includes any compulsory fees, so it's usually a little higher than the interest rate. That's why APR is the fairer figure for comparing two car finance deals.

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How APR works

APR turns the rate and fees into a percentage you can compare like-for-like, but the actual pounds you pay also depend on the term. A longer term means more interest, even at the same APR.

A worked example

On a £20,000 car with £2,000 down over 48 months at 9.9% APR, HP costs about £452 a month and £23,695 in total — roughly £3,695 of that is interest.

Worked example

Drop the APR or shorten the term and the interest falls. Turn any monthly quote back into an APR, and see the total interest in pounds, on the APR & true-cost calculator.