Car Loan Calculator
Car finance is quoted as a monthly payment, which is exactly the number that hides the total cost. This calculator shows both, so you can compare deals on the same basis.
Formula
M = P × [ i(1+i)ⁿ ] ÷ [ (1+i)ⁿ − 1 ]
- P = amount borrowed after any deposit and part-exchange
- i = APR ÷ 12
- n = term in months
£15,000 over 4 years at 8%: £366 a month
Working Out the Payment
A standard car loan amortises like any other:
M = P × [ r(1 + r)n ] ÷ [ (1 + r)n − 1 ]
£15,000 over five years at 7.9% APR comes to £303.43 a month and £3,206 of interest.
Stretching the same loan over seven years lowers the monthly figure and raises the total noticeably — check both numbers before choosing a term.
Flat Rate Versus APR
This is where car finance catches people out. A flat rate charges interest on the full original amount for the whole term, ignoring the fact that you are paying it down.
A 4% flat rate is roughly equivalent to a 7.5% APR. Both describe the same deal; only one reflects what you actually pay. Always compare on APR.
PCP, HP and Personal Loans
- Hire Purchase (HP): repay the whole value; you own the car at the end.
- Personal Contract Purchase (PCP): lower monthly payments because you only fund the depreciation, with a large optional balloon payment to own it.
- Personal loan: you own the car outright from day one, which usually means a better rate but higher monthly payments.
With PCP, compare the total amount payable rather than the monthly figure, or the balloon payment will surprise you.
Quick Reference
| Term | At 6% | At 8% | At 10% |
|---|---|---|---|
| 3 years | £456 | £470 | £484 |
| 4 years | £352 | £366 | £380 |
| 5 years | £290 | £304 | £319 |
Frequently Asked Questions
- What is the difference between PCP and HP?
- HP repays the full value of the car so you own it at the end. PCP funds only the depreciation, giving lower monthly payments but leaving a large balloon payment if you want to keep the car.
- Is a flat rate better than an APR?
- No, it is just a different way of quoting. A flat rate ignores the falling balance, so it looks roughly half the equivalent APR. Compare deals on APR only.
- Should I get dealer finance or a personal loan?
- A personal loan often carries a lower rate and means you own the car immediately, but dealer finance sometimes includes manufacturer subsidies worth more than the rate difference. Compare total cost.
- Can I pay off car finance early?
- Yes, under UK consumer credit rules. Ask for a settlement figure; up to 58 days of interest may be charged, and with PCP the balloon payment forms part of the settlement.