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What is Representative APR on Car Finance?

Posted on 19th April 2023
What is Representative APR on Car Finance?

With any kind of finance purchase you would be forgiven for being unsure what a vast array of the terminology means. With terms and conditions sometimes pages long, it’s easy to get confused. At Euphoria Finance, we try and keep it easy but that doesn’t mean there aren’t questions to answer.

Perhaps the most common revolve around interest and fees, after all, you are borrowing cash for a purchase, and you’d like to know what it’s going to cost!

Well at Euphoria Finance, as one of the leading car finance companies in the UK, we want to make sure everything remains transparent so in this week’s blog, we explain what representative APR means. Putting it simply, representative APR is the lowest rate that can be offered to 51% of borrowers. However, let’s dive in a little deeper.


What is APR?

APR is a term you find attached to any type of finance deal you may undertake. It could be for a new kitchen, some new furniture or for a new car finance offer. Standing for Annual Percentage Rate, it is the amount of interest that will be added to the purchase value in order to make the total amount that you need to pay back to the lender.

As part of the law surrounding credit agreements, an APR must be shown to you before any agreement is signed, this also means that you can shop around for offers more suited to your current financial situation.

It is calculated per year and then split across the number of months of your agreement, taking into account the decreasing balance. For example, your used car finance deal may be spread over 5 years at a rate of 15%. Let’s say you have chosen to borrow £10,000.

The 15% will then be worked out across the 5 years and added to the value of cash borrowed. This will then be divided across 60 months (5 years) to give you your monthly payment amounts.

APR can vary between lenders quite significantly and will fluctuate based on how much you borrow. The more you borrow, the more likely you are to see a lower rate. In addition, how long you plan to take to pay it back and your current credit score could also make a difference to the APR offered.

So what does representative APR mean in car finance?

Each person has their own unique credit profile, an insight into borrowing history and reliable they are with repayments. It will also show whether there have been any bankruptcy proceedings or CCJs put against them as well as factoring in income and expenses. This, in many cases, can help determine whether a finance application would be successful. Some lenders will refuse those with poor credit, the risk to lend is just seen as too high. At Euphoria though, things are done a little differently. We act as a direct lender and this means we can offer poor credit car finance allowing more people to secure the car they want affordably.

With all lenders, because each applicant is evaluated based on their own personal credit history and financial situation, a lender couldn’t possibly advertise a standardised rate of interest.

That is why they use representative APR. Using this, the lender can show what the lowest rate of interest would be for 51% of the borrowers.

As an example, if we were to say in an advert that a 15% representative APR is applied, then 51% of people we lend to will pay interest at that rate.

It is important not to jump to the conclusion that because you have a good credit score you will receive the lowest rate advertised. When your situation is assessed, the lender will make a decision and only then will you know your actual APR.

The remaining 49% of applicants will either be offered a higher rate or find their application rejected.

What about 0% representative APR?

0% always sounds tempting and in car finance, we can understand why. It means that the lender will not be adding any interest or charges to your loan. You are simply paying back the amount you borrow and nothing more. Sounds good! Well….. as the saying goes, “If it sounds too good to be true, it probably is.” And with 0% representative APR, it could well be the same. In many cases, any fees associated with the purchase and interest could be added to the amount you pay for the car instead. A £13,000 car could be sold at £15,000 quite easily.

If the opportunity for a 0% representative APR finance deal comes up, it is highly suggested to read the small print first as there is every chance you will be paying more than necessary. Furthermore, when it comes to selling your car, you will likely only get the amount it is worth at the time. This could mean the £13,000 car we mentioned has cost you £15,000 but will now only sell for £5,000, a £10k loss to you but really just an £8k loss against the real value of the car.

What is exact APR?

You could also see exact APR on some car finance adverts or agreements. An exact APR is the actual amount of interest and charges that will be applied to your finance package. In most cases, your exact APR will be higher than the representative APR of many car finance companies.


Should car finance be an option you are considering, speak to us at Euphoria Finance. With the opportunity to say yes to more people than many other lenders, we can have you driving your new or used car tomorrow! Simply get your free car finance quote to get an idea of costs and let us do the rest. With access to thousands of vehicles, it has never been easier to secure yourself your next car.

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