👉 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.
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.
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.
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.
Summary: End-of-year and quarter-end sales periods typically offer the strongest discounts and finance incentives.
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.
Summary: Falling rates and slowing demand mean car makers and dealerships are offering stronger incentives in 2025.
As interest rates fall, manufacturers and dealerships are ramping up incentives to attract buyers. These incentives often include 0 percent APR offers, deposit contributions, cashback, or discounted monthly payments on selected models. Dealers also introduce price cuts when new model years are released, which pushes down the cost of the outgoing versions. These promotions tend to be strongest at the end of the year or at the end of each quarter when sales teams are trying to hit targets.
Summary: Incentives can reduce the total cost of borrowing and improve affordability even before rate cuts take effect.
Even if base rate cuts take time to filter into finance agreements, incentives apply immediately. You could see a meaningful reduction in total loan cost when you combine a lower APR with a dealer contribution. If you are financing a new car, always compare deals from manufacturers and independent lenders to see which offers the best value.
Summary: EVs often benefit most from incentives and low APR deals during economic slowdowns.
Electric vehicles are expected to see some of the strongest finance incentives in 2025. Manufacturers facing slower EV demand are already offering interest-free finance, low deposit options, and larger cashback contributions. When this combines with falling base rates, EV buyers often see some of the best APR deals on the market. If you are considering an EV, keep an eye out for seasonal promotions or end-of-quarter offers, as these can significantly reduce monthly payments.
Summary: Slower demand and high stock levels mean EV offers are unusually competitive.
Many dealerships hold higher stock levels of electric cars due to fluctuating demand. This creates conditions where dealerships are more open to negotiation. Lower running costs, combined with improving finance offers, mean 2025 is shaping up to be a strong year for EV affordability.
Summary: enhancing your credit position and comparing lenders can increase your chances of securing a lower rate.
You’ll have more choice and better rates in 2025, but taking a few steps can make a big difference.
• Improve your credit score by keeping payments on time and reducing existing debt.
• Increase your deposit to lower the total amount you need to borrow.
• Compare APRs from lenders, dealerships, and manufacturers to find the best full-cost option.
• Look for seasonal offers like 0 percent APR or cashback on new models.
• Consider fixing your rate if you find a deal that suits your monthly budget. Fixed-rate car finance gives you payment certainty even if the base rate rises later.
Summary: falling interest rates reduce the cost of borrowing. In a car finance deal, this means smaller monthly payments and better overall value.
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. 👇
Yes. Car finance interest rates are likely to fall in 2025 because the lower base rate reduces the cost of borrowing for lenders, which encourages more competitive APRs.
The base rate affects car finance because a lower base rate reduces lenders’ borrowing costs, which leads to lower APRs for consumers.
You may save money by waiting, but only if you are not in a rush and market conditions remain stable.
Most car finance agreements use fixed interest, meaning your monthly payments stay the same throughout the contract.
Yes, used car finance rates may drop as base rates fall, although new car deals often benefit first from lender and manufacturer incentives.
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!