Advanced Subaru Financing: APR Percentages Explained

Whether you want a Subaru SUV or another body style, we encourage you to learn about Subaru finance from the pros in our Subaru financing center before you sign a loan contract. If you finance an automobile, your loan contract will include important terms, including an annual percentage rate or APR. Visiting Gillman Subaru Southwest is a wise move to learn what APR and other terms mean.

Interest Rate vs Annual Percentage Rate

Some people use the terms "interest rate" and "APR" interchangeably, but it's not appropriate to do so in the context of car loans. While both numbers are expressed as percentages, that's where the similarities end. The interest rate is the amount you'll pay to borrow money from a lender. While APR accounts for your interest rate, it also includes additional fees that are collectively known as prepaid finance charges.

Because APR accounts for charges like origination fees and advertising costs, the annual percentage rate is a more accurate expression of the amount it will cost you to enter into a loan agreement. It will also inform you of the total amount you'll pay for your automobile while your loan remains in force more accurately than your interest rate. Prepaid finance charges vary widely between lenders, so it's vital to pay attention to them and their influence on your APR.

Factors That Influence Your APR

As we just hinted at, prepaid finance charges influence your APR, but they're not the only things that do. Every auto loan contract includes an ARP regardless of whether you purchase one of our new Subaru vehicles or a pre-owned model. Your credit score impacts your APR dramatically because it's a measure of your creditworthiness. The better your credit score is, the lower your annual percentage rate will likely be.

An automobile's age affects your APR too. In general, APRs for pre-owned cars are higher than they are for new vehicles. That's often because new automobiles are more valuable than their previously owned brethren.

The term of a loan is the length of time the contract will remain in force. Shorter loans typically have lower APRs because borrowers will settle their debts faster. A longer term may lower your monthly payments, but it will increase the amount you ultimately pay because you'll end up paying interest for a longer period.