Will Car Finance Interest Rates Go Down In 2025?

👉 Bank of England interest rates - where are we now?
👉 What does this mean for car buyers?
👉 Will car finance interest rates go down in 2025?
👉 When is the best time to buy a car?
👉 What falling interest rates mean for your next car
👉 FAQs

Wondering if car finance interest rates will go down in 2025? You're not alone. With the Bank of England cutting its base rate to 4.25% and more reductions expected this year, many car buyers are hoping for cheaper car finance deals.

In this blog, we break down what the base rate is, how it affects car finance APRs, and what all this means for anyone looking to buy a new or used car in 2025. If you're planning to finance a car, this guide will help you understand the trends, time your purchase, and potentially save money.

What Is The Bank of England Base Rate, And Why Does It Matter?
The base rate is the interest rate the Bank of England charges when it lends money to other banks. When the base rate goes up, borrowing money (like loans or credit cards) usually gets more expensive. When the base rate goes down, borrowing becomes cheaper.

So, if the base rate drops, things like car finance, mortgages, and personal loans can have lower interest rates, meaning your monthly payments could be smaller, and you could save money over time.

Bank of England Interest Rates – Where Are We Now?

In May 2025, the Bank of England dropped interest rates to 4.25%. And there could be more good news ahead… we’re expecting more cuts this year, with hopes the rate could fall to around 3.5% by the end of 2025.

The Bank of England has recently cut interest rates from 4.5% to 4.25%, and it's widely anticipated that further cuts will be made in 2025, potentially bringing the base rate down to 3.5% by the end of the year. This is due to concerns about a potential trade war impacting economic growth and the easing of inflation.  

Thinking about buying a car this year? Falling interest rates are just one reason why 2025 could be the ideal time to make your move. From competitive finance offers to improving economic stability, the current market conditions create real opportunities for car buyers. Check out our full guide on why 2025 is a great time to buy a car.

What Does This Mean For Car Buyers?

Lower Finance Costs: The biggest impact of the Bank of England interest rate drop is the potential for lower finance costs (APRs). If you’re planning to use car finance for your purchase, it may mean that you’re offered better interest rates and potentially lower monthly payments. Wondering how lower interest rates could save you money? Dive into our easy guide to car finance APRs and see how it all adds up.

Potential For Further Cuts: While the Bank has already made cuts this year, we anticipate further cuts in the second half of the year, making finance options even more attractive.

Will Car Finance Interest Rates Go Down In 2025?

Yes, car finance interest rates may go down in 2025. Following the Bank of England’s base rate cut to 4.25% in May, many lenders are adjusting their car finance APRs. If the base rate continues to fall, as some analysts predict it could reach 3.5% by the end of the year, it’s likely that car finance interest rates will also become more competitive.

• Lower monthly payments
• More affordable credit for near-prime and prime borrowers
• Better finance deals on new and used cars

When Is The Best Time To Buy A Car?

If you’re thinking about buying a car in 2025, timing your purchase could save you money. The best deals often appear at the end of the year — especially in December — when dealerships are eager to hit annual sales targets. You might also find strong offers at the end of each quarter (March, June, September, December) or when new models are released in late summer, as dealers look to clear old stock. Even month-end and holiday sales events can offer great opportunities to negotiate.

Want to know exactly when to buy for the best deal? Read our full guide here.

What Falling Interest Rates Mean For Your Next Car

With the Bank of England cutting rates and the possibility of further reductions in 2025, now is a great time to start thinking about your next car finance deal. Lower interest rates could mean smaller monthly payments, more affordable borrowing, and better overall value, whether you’re buying new or used. Keep an eye on rate trends, compare your options, and explore flexible finance deals that work for your budget. At Marsh Finance, we’re here to help you make the most of what 2025 has to offer.

Ready to see how much you could save? Check out our latest car finance options today. 👇

FAQs

Will car finance interest rates go down in 2025?

Yes, car finance interest rates may go down in 2025. The Bank of England has already reduced the base rate to 4.25% in May 2025, and further cuts are expected. If the base rate continues to fall, lenders may offer more competitive car finance APRs, leading to lower monthly payments for buyers.

How does the Bank of England base rate affect car finance?

When the Bank of England lowers its base rate, it becomes cheaper for lenders to borrow money. This can lead to lower interest rates on car finance deals, meaning you could pay less each month and save money over the life of the loan.

Should I wait to finance a car if interest rates are going down?

If you're not in a rush, waiting could help you take advantage of future rate cuts. However, many lenders already offer competitive rates, especially on used cars or to borrowers with good credit. If you find a deal that suits your budget now, locking in a fixed rate could offer peace of mind.

Is car finance interest fixed or variable?

Most car finance agreements, like HP and PCP, come with fixed interest rates. This means your monthly payments stay the same, even if the Bank of England changes the base rate. However, some personal loans or flexible finance products may have variable rates; always check the terms.

Will used car finance rates drop too?

Used car finance rates may also go down, but new car deals often benefit first from rate cuts. That said, used cars typically cost less overall, and lower APRs combined with lower car prices can still lead to excellent value for buyers in 2025.

Can I get car finance with a low credit score in 2025?

Yes, many lenders, including Marsh Finance, offer car finance to people with less-than-perfect credit. As interest rates fall, non-prime customers may also benefit from better rates and more flexible finance options.

Want to check your eligibility without impacting your credit score? Apply today and receive a decision on the same day!