How are car loan payments calculated?

Car loan monthly payments are calculated using the standard amortisation formula. The formula takes into account the principal (loan amount minus deposit), the annual interest rate converted to a monthly rate, and the number of monthly payments. Each payment covers both interest and a portion of the principal.

What is a good APR for a car loan in the UK?

As of 2025, typical UK car loan APRs range from about 4% for excellent credit to 15%+ for poor credit. Dealer finance may offer 0% on new cars but often at a higher purchase price. Personal loans from banks and building societies typically offer 3-7% APR for good credit scores.

Is a personal loan or dealer finance better?

Personal loans often have lower interest rates and give you the advantage of being a cash buyer at the dealer, which can mean a better price. Dealer finance (HP or PCP) can offer 0% deals on new cars but may have higher rates otherwise. Always compare the total cost of both options.

What deposit should I put down?

A larger deposit reduces your monthly payments and total interest. Most lenders accept 10-20% as a deposit. Putting down at least 20% can help you avoid negative equity (owing more than the car is worth) as the car depreciates.

Can I pay off a car loan early?

Yes, under UK Consumer Credit Act regulations, you have the right to settle a car loan early. You may need to pay up to 58 days of additional interest, but you'll save on the remaining interest. There should be no early repayment penalty on regulated agreements.

CarCalcs

Car Loan Calculator — Monthly Payments & Interest

Calculate monthly payments, total interest, and total cost for a car loan or personal loan used to buy a car.

Car Price / Loan Amount

Deposit

Interest Rate (APR)

Loan Term

How We Calculate This

The Amortisation Formula

Monthly payment = P x [r(1+r)^n] / [(1+r)^n - 1]

P = Principal (loan amount minus deposit)
r = Monthly interest rate (annual rate / 12)
n = Number of monthly payments

Example

A £15,000 loan at 6.9% APR over 4 years with a £2,000 deposit means borrowing £13,000. Monthly payment = approximately £310. Total interest = approximately £1,870.

Frequently Asked Questions

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Last updated: February 2026

All calculations are estimates. Actual figures may vary based on driving conditions, vehicle specifications, and other factors.