FCA Questions Whether APR Shows True Cost of Car Finance

The Financial Conduct Authority is questioning whether Annual Percentage Rates truly help consumers understand the cost of car finance and other credit products, according to the FCA.

The regulator has launched a review into how borrowing costs are communicated in credit advertising, with potentially significant implications for how car finance deals are presented to British buyers.

Research reveals APR limitations

New FCA research shows that while APRs help consumers compare similar products, they can be misleading when different types of credit are involved. The study found that 80% of people correctly identified the cheapest product when a lower APR meant lower total repayments.

However, fewer than one in five people made the right choice when the lower APR didn't actually mean cheaper borrowing overall.

"There's evidence that APRs do not always allow people to understand the true cost of credit," said Alison Walters, director of consumer finance at the FCA. "We're asking for views on whether there's a better way."

What this means for car buyers

Currently, most credit advertising must display a representative APR - meaning at least half of consumers receive that rate or better. This applies to car finance deals including personal contract purchases (PCP) and hire purchase agreements.

The FCA's research suggests that total repayment figures alongside APRs could help consumers better understand true costs. However, providing different information for different products might make comparisons harder and more confusing.

For car buyers, this could reshape how finance deals are advertised. Rather than focusing primarily on APR figures, dealers and finance companies might need to emphasise total amounts payable or monthly payment breakdowns.

Industry simplification planned

The FCA is also proposing to simplify parts of the Consumer Credit rulebook, removing outdated requirements and duplication. Many of the current financial promotions rules pre-date the FCA taking over regulation in 2014, with some dating back to 2004.

The changes aim to remove overly prescriptive requirements where the Consumer Duty already sets clear expectations for firms to support consumer understanding.

Timeline and next steps

The consultation and discussion period runs until 17 June 2026. The FCA is seeking views from industry and consumer groups on whether more flexible ways of presenting loan costs could help borrowers make better informed choices.

For consumers currently shopping for car finance, the advice remains unchanged: compare total amounts payable rather than just APR figures, and ensure you understand all costs including any final balloon payments on PCP deals.

Anyone with concerns about credit advertising or finance agreements can contact the Financial Ombudsman if they believe they've been misled.

The review forms part of the FCA's broader commitment to simplify regulations while ensuring consumers can make informed financial decisions.