Do you know your APR from your elbow? 90% don’t understand car finance

Only one in ten drivers can work out the cost of their car loans with APRs and PCPs causing widespread confusion

Car finance

A survey by digital bank Zopa shows nine out of ten UK drivers don’t know how to work out how much their car finance will actually cost, while three quarters can’t explain what APR means.

Annual Percentage Rates (APRs) are fundamental to calculating car finance costs, yet according to Zopa’s figures 77 per cent of drivers don’t know what the abbreviation stands for, while almost 20 per cent say they don’t consider APR when looking at car finance deals.

The figures may not be that surprising, as affordability of a monthly payment is what many buyers tend to look at when agreeing finance terms on a ‘new-to-them’ purchase. Nonetheless, the survey suggests that approach probably feeds into a sense of disgruntlement for the 41 per cent of drivers who feel they have overpaid for cars in the past.

That’s potentially a lot of people, given the numbers of people using finance to buy used cars: 52 per cent of drivers surveyed said they’ll be looking for a used model when it comes to changing their car, while 49 per cent said they’ll use some sort of finance to fund the purchase.

Meanwhile, not content with asking respondents whether they understood the concept of APRs, the Zopa survey also asked car owners to ‘do the math’ on a simple APR calculation. 90 per cent of those asked couldn’t say what the total cost of a £10,000 car loan would be over four years with a 5 per cent APR.

Given the lack of basic understanding, it’s not surprising that half (50 per cent) of car buyers found the process intimidating, and 45 per cent don’t feel confident when it comes to negotiating used car deals.

Other stumbling blocks include understanding the different types of finance available; only 35 per cent claimed to be able to understand and explain hire purchase, 25 per cent felt able to do the same with personal contract purchase (PCPs), and with personal contract hire the proportion fell to 20 per cent. The term ‘balloon payment’ - fundamental to the concept of PCPs - was only understood by a very low 16 per cent of drivers.

Click here for our list of the best leasing deals available right now...

Current affairs and features editor

Chris covers all aspects of motoring life for Auto Express. Over a long career he has contributed news and car reviews to brands such as Autocar, WhatCar?, PistonHeads, Goodwood and The Motor Trader.

Recommended

UK firm fitting ‘pop bang’ aftermarket exhausts fined in landmark court case
MINI Hatch exhaust
News

UK firm fitting ‘pop bang’ aftermarket exhausts fined in landmark court case

A successful court action against a workshop advertising and fitting non-standard exhaust parts is ‘a lesson for businesses’ from the DVSA
23 Nov 2023
Why is electric car insurance so expensive? EV vs ICE cost analysis
BMW iX3
News

Why is electric car insurance so expensive? EV vs ICE cost analysis

We look into claims that electric cars face higher insurance premiums than ICE equivalents
22 Nov 2023
No help for electric car buyers in Autumn budget statement
Parliament
News

No help for electric car buyers in Autumn budget statement

Chancellor resists calls from industry to fund EV purchase grants or reduce VAT on public charging
22 Nov 2023
What’s in the 2023 Autumn Statement for drivers? EV incentives, fuel duty or VAT on charging?
News

What’s in the 2023 Autumn Statement for drivers? EV incentives, fuel duty or VAT on charging?

We look at some of the options for chancellor Jeremy Hunt when he announces his plans on 22 November
21 Nov 2023

Most Popular

New 2024 Dacia Duster: third generation of Europe’s best-selling SUV revealed
Dacia Duster - front
News

New 2024 Dacia Duster: third generation of Europe’s best-selling SUV revealed

Dacia has taken the wraps off the latest Duster, which arrives with a new look and fresh technology
29 Nov 2023
The paper-thin speakers set to transform car audio
Auto Express editor-in-chief Steve Fowler holding a speaker developed by Warwick Acoustics
Features

The paper-thin speakers set to transform car audio

British firm is planning to shake up the in-car hi-fi world with its audio panels that replace traditional speakers. We sound them out
27 Nov 2023
Deal of the Day: Great value Suzuki S-Cross looks even better at £187 a month
Suzuki S-Cross Hybrid - front tracking
News

Deal of the Day: Great value Suzuki S-Cross looks even better at £187 a month

Our Deal of the Day for Monday 27 November is the Suzuki S-Cross, a rugged and generously specced small SUV
27 Nov 2023