What Does Apr Mean When Buying A Car
When it comes time to finance a new or pre-owned car, several terms are important to understand. One such concept is the annual percentage rate, or APR. The APR expresses the total cost of borrowing which may differ among lenders based on how they set their rates, and the fees they charge. Your credit score and the amount you borrow will also affect the APR on your loan. Learn the APR meaning for car loans and how to use this information when purchasing your next vehicle.
what does apr mean when buying a car
There are several factors to consider when preparing for a car purchase, which can feel overwhelming. Knowing the common lingo for car buying and auto financing offerings can help you choose the option that works best for you and your finances.
Another important item to note is that the average amount financed has been on the rise. This is due to a mix of factors that include inflation, customer preference for pricier SUVs, and the generally rising cost of new cars. In 2017, for example, the average financed new car loan was around $30,500, according to Edmunds sales data. Compare that to the first quarter of 2022, when the average financed new car loan was approximately $39,340. Loan terms within that same timeframe have more frequently stretched to 72 and 84 months, an indicator of what people are doing to cope with increasing costs. And longer loans mean more money paid in finance charges and a longer time to gain equity in the vehicle.
2. Find a car that has a low APR offer: While there are far fewer 0% interest offers than in the past, it doesn't mean they've dried up completely. Plus, there are still a number of low APR deals for 1.9% or 2.9%. If you're willing to keep an open mind about brands and models as well as consider models that you might not be familiar with, you can still get a solid financing deal.
1. Consider buying an older used car: The average used-car interest rate is higher than the new-car rate, but since a used car is generally less expensive than a new one, you're more likely to get financed and have a lower monthly payment than if you bought new. Just be mindful of the length of the car loan: An 84-month loan on a used car means you could have a very out-of-date vehicle on your hands by the time you pay it off.
A flat rate is based on the original amount borrowed, but APR will only take into consideration what remains. As a flat rate stays the same throughout the life of a loan you will not see your repayments go down. However, APR means you would only pay interest on the outstanding balance, which can certainly make a difference when you are looking for finance for your vehicle.
As we all have different credit profiles due to our borrowing and spending habits, when we are looking for car finance, we may not get the same APR as the person next to us. This is where representative APR comes into play. Representative APR looks at the lowest APR that a particular lender will offer to 51% of the people accepted. If you see a loan that offers a 12.5% APR, this means that 51% of people are accepted for that loan at that rate. The other 49% get accepted, but they are likely to be offered a higher APR.
A personal APR is an APR that has been worked specifically out for you which is likely to be different from the representative APR. It has been calculated on a variety of variables, such as how much you wish to borrow, your credit history, and your current financial situation. However, this doesn't mean that you will get the same personal APR with every lender. Each lender may have its own specific set of criteria and may offer you a different APR.
Interest is something that we don't always consider, especially when we are looking at the cost of a car upfront, but we always need to factor in this important component when buying our dream vehicle. It is time to get interested in it!