Car Finance: APR Rates & Other Fees Can Baffle Customers

Find buying a car difficult? You’re not alone! Buying a car is one of the biggest purchases many of us will make in our lifetime, yet new research by digital bank Zopa reveals motorists do not understand how much it will really cost them – making the process intimidating, complex, and stressful. Yes it’s those tricky interest rates and trying to work out what the APR rate over 3-5 years actually means in cash terms isn’t as simple as it looks.

The report highlights that over half of UK drivers (52%) will be in the market for a used car when it comes to buying their next vehicle – with almost the same figure (49%) using a loan or credit to fund their purchase.

Despite cost being a huge factor for many, and a total £40.7 billion spent in the UK on car finance in 2022 alone, a surprising three-quarters of motorists (77%) admit to not knowing what the term APR (Annual Percentage Rate) stands for when buying a car, with 1 in 5 motorists (19%) failing to consider the APR when calculating the true cost of their next vehicle.

Almost all (90%) British car owners surveyed were unable to correctly say how much a £10,000 car would cost at an APR of 5% over a 4-year term. Of course with many lease deals, the APR isn’t the only problem. There’s the extra admin fees, initial downpayment, plus an agreed value in the future – assuming the car is fully serviced with no scratches or dents of course.


The research also found that some 50% of car owners felt that buying a car was an intimidating process, while 45% of British car owners wouldn’t feel confident negotiating on price when buying a car, and 41% feel they have over-paid for a car in the past.

Not surprisingly 6 in 10 (62%) people will take over a month to research their options when it comes to choosing a car – this is compounded further by the uncertainty of the cost-of-living crisis. The average time spent researching a car in the UK is 6.2 weeks, with women spending 6.7 weeks on average and men 5.6 weeks. When asked about different types of car finance, only 35% felt they understood and could explain hire purchase finance, with even fewer being able to explain personal contract purchase – or PCP (25%) – and personal contract hire (20%). Only 16% said they understand the meaning of a balloon payment.

Tim Waterman, Chief Commercial Officer at Zopa Bank, said: “Car finance is, on average, the second largest monthly payment consumers make after their rent or mortgage. Digitising the car financing journey drastically improves how people access finance, bringing the experience up to standard with how people borrow and save money – online.

“Before they search for a vehicle, speak to a dealer, or take a test drive, consumers should find out how much they can borrow, and at what rate and duration. Zopa bank pre-approves online car finance for more than 2,600 people every day.”

British racing driver and industry expert Vicki Butler-Henderson added: “Buying a car remains notoriously complex and stressful. It shouldn’t be. My advice to motorists is to first decide what sort of car they need. They should then look at car-selling websites and work out what their budgets will buy. Checking this online and getting an online pre-approval from a bank like Zopa before setting foot in the dealership gives more control, transparency, and greater bargaining power to consumers.”

Zopa bank is digitising and modernising the car finance journey in the same way that online search engines digitised the travel industry, moving it online.

For more information on Zopa bank’s car finance offering, visit

About alastair walker 11422 Articles
20 years experience as a journalist and magazine editor. I'm your contact for press releases, events, news and commercial opportunities at Insurance-Edge.Net

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