Can I get a better interest rate on a car loan?

Q I have recently been quoted what seems a very low interest rate - 4.75% - for a flat-rate car loan. Is this unusually low and is there a higher APR to consider?

RH

A Flat-rate loans can be appallingly misleading because of what appears to be a simple calculation of interest. Here's an example of just how misleading, taken from Michael Kelly's online book, Mortgages exposed.

Let's say you borrowed ?1,000 over a year at a flat rate of 14%. The lender's calculation might follow the following logic: 14% of ?1,000 is ?140 so, over a year, the amount to be repaid is ?1,140, or ?95 a month (?1,140 divided by 12 = ?95).

However, from the point where you make your first loan repayment, you are actually paying off capital as well as interest - so you shouldn't be paying 14% interest on the full amount of capital for the entire year. In this example the actual rate of interest payable comes out at a whopping 27.96%!

The reason for the introduction of APRs - or annual percentage rates - was to make loans directly comparable. Clearly, a flat rate of 4.75% does not equate to an APR of 4.75% - it's more likely to be near twice that.

Depending on how much you're borrowing, an APR of around 9% could still represent a good deal but you might want to do a bit more shopping around before you choose your loan provider.