What is APR?

One of the most commonly used terms you will hear when you are looking at loans is APR. You will see it as a percentage rate everywhere, but what does it actually mean for you?

APR stands for Annual Percentage Rate and was supposedly introduced to make things clearer for people who want to compare different loans. It is calculated over the course of a year and is the actual amount it will cost for your whole debt over the course of that year. It includes everything in the calculation, so that means the interest and fees you will be charged.

The APR is calculated by assuming that you are borrowing £1200, and all companies who make an APR calculation will use this. That is why it can be a useful calculation, because there is a standard formula that is used to calculate the figure.

Representative APR

The representative APR is the figure that most borrowers can expect to receive on their loan. This figure is actually set at 51% of borrowers which is just over half the people who use that loan product. So remember that nearly half of the people who take out this loan might be paying a completely different APR.

APR percentage

When you apply for a loan be careful what the APR you actually get is and donít rely on the representative APR is because there is quite a large chance that the representative APR isnít the one you will get.

A figure that is generally clearer is the personal APR, this is the actual APR that you will pay on your loan. You will have been quoted that figure and you will pay that figure, there is no deviating from that. You will receive this kind of rate when you apply for a mortgage because the interest rate is relevant to you.

When will the APR vary?

The APR could vary depending on the amount you are looking to borrow. You may be quoted a lower rate for loans that are for larger amounts. Remember that if you are doing calculations yourself, donít just look at the APR that is advertised, this might be wrong for the loan you are looking to take out. Ask for the APR for that particular loan amount as it could be significantly different. In general, loans with a higher value will have lower APRís, whereas lower value loans will have higher APRís. This might not always be the case so remember to check with the lender first.

Whenever you take out a loan, the general advice is to make sure that you are clear what the APR is, how much you are paying back over the length of the loan term, and what your monthly payments are.