How to compare apples with apples in car finance

How to compare apples with apples in car finance

When it comes to comparing car finance, it can be really confusing especially when you are confronted with AAPR and comparison rate. They both seem like terrifying and overwhelming concepts on paper, but we’ve put together this handy guide so that when it comes to your car finance, you know exactly where you stand. We’ll soon have you comparing apples with apples in car finance.

What is the AAPR?

The AAPR stands for the Average Annual Percentage Rate. This shows the interest rate you can expect to see on your loan over the life of it. This means that you can look at a wide range of loans and see what the actual rate you are paying is without getting tripped up by introductory offers, early pay out fees and ongoing fees.

What is the comparison rate?

The comparison rate is an interest rate that brings together the interest rate and any charges or fees that are expected to be incurred over the course of the loan. This can be really helpful when you are trying to get an idea of what your car finance is going to cost you over the duration of the loan.

The comparison rate can be used to compare lots of different loans to see not just which one looks the best on paper, but which one will actually cost you the least over the life of the loan. However, it isn’t the only thing you should use. There are certain things that are and aren’t included in the comparison rate and some of the things that aren’t included may be things that could influence your car finance decision.

What is and isn’t included in the comparison rate?

The comparison rate includes:

  • the basic or nominal interest rate
  • Ongoing fees that are known
  • Up-front fees

The comparison rate doesn’t include:

Statutory fees and government fees are standard, regardless of the type of loan you are taking out or who is providing it, so no matter which loan you choose, they will remain. Event based charges are fees that come about due to your own personal circumstance and can’t really be predicted, therefore can’t be included. These are fees like statement fees and early repayment fees as well as missed or late payment fees.

How do you calculate the comparison rate?

The comparison rate is worked out using a standard formula. It has be calculated according to regulation guidelines, so you can be sure that it is the same on every loan you look at. The formula that is used takes into account the following information:

  • the term of the loan
  • the interest rate
  • the frequency of repayments
  • fees and charges that apply to the loan
  • the amount borrowed

This means that it is a little more sophisticated than using a standard loan calculator.

So which works for me?

Using either the AAPR or the Comparison Rate can help to narrow down your car finance options and give you a more realistic picture of what your car financing options are, however it is when you put the two together and use them both that you can start to see how a loan will really affect your finances.

Finding out what the statutory and government fees are as well as looking through your insurance premium options whilst you are narrowing down your car finance options will give you a much better indication as to how much a particular vehicle will fit into your budget and affect your finances over the lifetime of your car loan.

Interested in car finance?

Speak to a member of our team today on 1300 4 CAR LOANS or get your obligation-free finance quote online now. Our team will talk to you about your needs and tailor a finance and insurance package that is designed to suit your individual situation.

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Tags: Interest Rate, Comparison Rate, AAPR, Approved Car Loans

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