Understanding Car Finance APR – The Motorly Guide
If you are looking to finance your next car you may be a little confused about some of the financial jargon used. One such term is APR. We’ll break down what it means and how it affects your next purchase.
What is APR?
APR is a key factor to think about when it comes to car financing. However, you might wonder what APR actually is. It’s the annual percentage rate, or APR, to put it simply—a gauge of borrowing costs. It includes any additional costs or fees associated with a loan, such as origination fees or closing costs, in addition to the interest rate on the loan.
The APR on a car loan can have a significant impact on the overall cost of the loan. A higher APR means that you will be paying more in interest over the life of the loan, which can add hundreds or even thousands of dollars to the total cost of the loan. On the other hand, a lower APR can result in significant savings, as you will be paying less in interest.
When looking for a car loan, it’s critical to compare the APRs provided by various lenders. This will assist you in finding the loan that offers the most favourable interest rates and costs, ultimately saving you money. To make sure you are getting the best deal possible, you should also take into account other aspects, such as the loan’s terms and overall cost.
What’s the difference between representative APR and exact APR
The representative APR is the APR that a lender must quote to at least 51% of successful applicants. It is intended to give consumers an idea of the interest rate they can expect to receive on a loan or credit card.
The exact APR that you are offered on a loan or credit card may be different from the representative APR, as it is based on your personal circumstances and credit profile. Lenders take into account a variety of factors when determining the exact APR for an individual, including their credit score, income, and debts. As a result, the exact APR that you are offered may be higher or lower than the representative APR.
It is important to keep in mind that the representative APR is just an estimate and is not guaranteed. The exact APR that you are offered may be different, depending on your personal circumstances and credit profile. It is always a good idea to shop around and compare offers from multiple lenders to find the loan or credit card that offers the best terms and lowest APR.
What affects the APR offered by lenders?
There are several factors that can affect the APR you are offered on a car loan. These include:
- Your credit score: Lenders use your credit score to assess your creditworthiness and determine how likely you are to default on a loan. If you have a higher credit score, you may be offered a lower APR.
- The type of loan: Different types of loans, such as fixed-rate loans and adjustable-rate loans, may have different APRs.
- The length of the loan: The longer the loan term, the more interest you will pay over time. As a result, loans with longer terms may have higher APRs.
- The size of the loan: Lenders may charge higher APRs on larger loans due to the increased risk associated with lending a larger amount of money.
For more tips on how to save money on your next Car Finance deal, check out our guide on how to get the Best Cheap Car Finance Deals with Motorly.