Whist we all closely monitor our own finances, It is fair to say that we are not always fully aware of recent changes such as the interest rate hike and what it means for us. When you look into borrowing money whether this is through a bank loan, mortgage or a finance package for a car, you incur an interest charge in the amount you want to borrow.
The bank of England base rate influences all the other rates in the UK. Since December 2021 the bank of England base rate has gone from 0.25% to 4% (as of the 06/03/2023). This is due to inflation being high. Inflation is a general increase in prices and fall in the purchasing value of money. Raising interest rates is intended to help get inflation down. There will be an increase in borrowing costs and loan rates at first. However we hope In the long run, it will reduce inflation and living costs.
With the interest rates rising, what does this mean for car financing? This also has an effect on the annual percentage rate (APR). An APR refers to the total cost of your borrowing for a year. Importantly, it includes the standard fees and interest you’ll have to pay. This will result in the loan payments and total purchase price increasing, resulting in higher monthly payments. It’s easy to assume that the lender with the lowest representative APR will offer you the best deal. The APR you receive will, however, be based on your personal circumstances when you apply. The APR may be the same, higher, or lower than the representative APR. Car finance agreements are mostly fixed rate agreements. This means that the interest rate stays the same over the length of your agreement and will not change if there is an interest rate increase or decrease.