APR EXPLAINED

APR EXPLAINED

APR stands for the Annual Percentage Rate, and when it’s calculated it has to include both the cost of the borrowing and any associated fees that are automatically included. Thus it’s meant to give you the overall equivalent cost of any debt. This is from the regulator, the Financial Services Authority (FSA):

APR stands for the Annual Percentage Rate of charge. You can use it to compare different credit and loan offers. The APR takes into account not just the interest on the loan but also other charges you have to pay, for example, any arrangement fee. All lenders have to tell you what their APR is before you sign an agreement. It will vary from lender to lender and from loan to loan. Normally the higher the credit rish (bad credit score) the higher the amount. Pay day loans normally carry a much higher APR than loans that are secured against assets like a house or car

The fact it includes charges means sometimes the APR can be a bit confusing. It is possible the interest rate is 14% per annum, but the APR is 17%, as the impact of the charges adds the equivalent to another 3% interest. Yet this is useful as it allows a true comparison.