Whenever you are applying for car finance or a similar type of credit agreement like a loan, you’ll see the term APR used. This will come up whenever there’s mention of fees or interest rates. It may seem confusing at first, especially when it’s used in combination with other financial jargon, but it’s not too hard to get your head around once you break it down.

APR simply stands for Annual Percentage Rate. It’s used to help show you the overall cost of the money you are borrowing. It does this by showing an overall percentage of what you’ll owe annually, which looks at both the interest rate and any other additional charges required. APR applies to car finance and a number of other financial products and lenders are legally required to show you their APR before a deal is agreed and anything is signed.

How does APR work

When you’re comparing car finance deals, or other types of loans, you’ll want to look at the APR being offered by a lender before you make a decision. The APR will be expressed as a percentage and a general rule of thumb is that you want to get a deal where the APR is as low as possible. For instance, a car finance deal with an APR of 5% is better than one with an APR of 8%.

It’s the amount you borrow, plus the associated fees that are automatically included. This includes the application fee and any other annual fees that are attached to the deal which aren’t the interest rate.

So, if you’re looking at two car finance deals, you’ll want to check what the APR is before you make your decision, as you’ll want to know what the interest rate is, plus the additional costs of any fees. You’ll be able to use the APR given to work out how much the cost of the deal will be for you overall, whereas just using the interest rate will only show you how much more you’d pay in interest, ignoring any other fees attached.

An APR essentially allows you to make a true comparison between deals.

What is Representative APR? 

Representative APR is the APR that a lender offers to most of their customers. When they are advertising their deals they’ll use representative APR as it’s the APR that they offer most often. This means that a representative APR gives you a good idea of the interest rate, plus fees, that you will be offered from a particular lender.

It’s worth noting that while a lender can only advertise an APR as representative if they offer it to the majority of their customers, this majority only needs to be marginal, so it could be a little over 50% of their customers. This means that there may be some considerable leeway in what they offer and a representative APR should only ever be used as an example. It does, however, provide you with a simple and easy way to compare different lenders and it’s used in most calculators to assist with these comparisons.

A representative APR is generally the minimum you can expect to be offered by a lender.

Sub Headline <h2> What is Personal APR

A personal APR is the one offered to an individual once an application has been complete. When you’re first looking for a deal, you’ll only see representative APR. It’s not until your application is complete that you’ll see something more tailored to your particular situation.

This personal APR will be based on your own unique circumstances and the amount you want to borrow. It may vary from the representative APR example you saw before you applied it’s not until a lender has a stronger understanding of you, your financial situation, credit score and the amount you want to borrow, that it can tailor an offer that’s entirely yours. Your personal APR can be the same as, or more than, the representative APR example that you see when you’re first applying.

How is APR Calculated

When calculating APR the following factors are taken into account:

  • The interest rate, and whether it’s daily, monthly or yearly
  • Any additional fees (initial fees and any compulsory fees over the course of the agreement)

These factors are combined to show the overall amount you’ll pay annually in interest.

APR Representative example

The below table shows how this would work using our own representative APR, which we use for our car finance calculator, as an example. This then compares it against another example for borrowing the same amount which shows how APR can include both charges and interest rate:

The ChooseMyCar Representative APR Another example of APR
Amount borrowed £6,500 £6,500
Loan term 4 years 4 years
Representative APR 21.4% 23.77%
Annual interest rate 21.4% 22.0%
Borrowing fee £0 £200
48x monthly instalments £196.24 £211.09
Total charge for credit £2,919.52 £3,632.41
Total amount paid £9,419.52 £10,132.41

What can affect your APR?

Your APR can be affected by a number of different factors. This can include the amount you’re borrowing, any deposit you can pay upfront and the length of the term you are looking to pay the money back over.

One of the main factors that will affect your APR for car finance is your credit score. Generally, the better your credit rating, the lower the APR you are offered will be. As specialists in car finance, ChooseMyCar are experts in helping people get bad credit car finance and guarantor loans for car finance.


To increase your chances of getting a better deal on car finance and a lower APR you can look at ways you can improve your credit score. Doing so may put you in a stronger position when you’re applying for car finance. But, as specialists in bad credit car finance, we are still here to help, even if your credit score is low.