Annual Percentage Rate (apr)

The APR is a way of expressing the true cost of a loan taking account of not just the amount of interest to be paid, but also when the payments are to be made and the impact of any other charges you have to bear as a result of taking out the loan - for example, arrangement fees. The APR is given as a percentage figure and looks just like an ordinary interest rate but must be identified as the APR and must be given more prominence than any other rate included in the quotation.

Here is an example of how a 'flat rate' (often quoted by lenders) compares with the true rate - APR. Suppose you borrow £400 which must be repaid in four equal instalments made over a year. You're charged £40 interest which means that you repay £410 in total and the flat rate will be 10 per cent. But in reality, you're borrowing the full £400 only for the first three months. You then make the first repayment of £47.50 (£45 capital and £4.50 interest), so you're borrowing only £145 during the next three months, £100 in the next and just £45 in the last quarter of the year. So the £40 interest is really being paid on a loan which is lower than £400 for most of the period and this represents a true cost to you of 16 per cent. This figure is the APR. The flat rate makes the loan look deceptively cheap.

Working out APRs is complicated but you don't need to be able to do this yourself - even most lenders use pre-calculated tables. What it's important to know is that you can use the APR as a yardstick to compare the cost of different loans. The APR should be used in conjunction with other information about the loan to decide which is the best method of lending for you.

TIP - If the APR on one loan is higher than the APR on another, this means that the first loan is the more expensive. Use the APR to make your decision about which lenders to approach for further details. (Always approach a few, if you can.) Request a quotation from each, so that you have all the facts you need to make your final decision.

Not all lenders have to quote APRs for example, those offering overdrafts don't have too, and often don't.

For more information about Building Societies

Getting A Quote

When you enquire about a loan or credit deal, the lender or shop must normally give you a written quotation covering certain details about the loan if it's a regulated one, or one secured on your home. But a quote doesn't. have to be given if the goods or services you're interested in cost no more than £100, or full details of the loan are prominently displayed in the shop when you visit it, or in certain other circumstances.

The quotation must include information such as the name and address of the lender, the cash price of the goods or services you want, the amount of any deposit... see: Getting A Quote

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