| If you’ve ever bought a house or a car, or | | | | actual interest rate attached to the loan. |
| you’ve made any type of purchase with a | | | | For example, if you have a fixed rate mortgage, |
| store or credit card, then chances are, | | | | the following could apply: |
| you’ve come across the term APR. | | | | Initial interest rate: 8% |
| APR is simply an acronym for ‘Annual | | | | Loan term: 30 years |
| Percentage Rate’. When you’re shopping | | | | Loan amount: £90,000 |
| for finance, whether it’s for a car loan, | | | | Total prepaid charges: £2,673 |
| mortgage or credit card, the APR is there to | | | | APR: 8.3205% |
| guide you during your search for the best loan on | | | | (Example source: |
| the market. | | | | When advertising any form of credit, the law |
| Legally, all banks and lenders must provide | | | | requires that lenders ensure that the APR is |
| consumers with information about the costs and | | | | shown more prominently than any other rate |
| terms of a loan, under the Truth in Lending Act. | | | | advertised on the page. |
| The intention of the Act is to help consumers | | | | If you have a fixed rate loan, the APR cannot |
| fairly compare the different loans offered by | | | | change during that fixed period. If you’re loan |
| various financiers, so they can make a decision | | | | is attached to a variable rate, however, you have |
| without being misled or deceived. | | | | no guarantees that the APR will remain the same |
| Although it sounds simple, the APR is actually | | | | during the life of the loan. This means that if your |
| based on quite a complex mathematical formula. | | | | bank raises its interest rates, the APR on your |
| Essentially, it is a measure of the cost of credit, | | | | home loan or credit card will also go up – but |
| expressed as a yearly rate. | | | | if the bank cuts its interest rates, your APR will |
| The APR reflects the amount of money being | | | | likely go down. |
| financed, the interest rate, the timing of the | | | | If you’re looking for any type of loan, |
| payments, and any other fees and charges – | | | | comparing credit card APRs, for example, of the |
| such as administration costs and broker charges | | | | different products available is often the best place |
| – that are associated with the loan. It would | | | | to start, but it’s important to read the small |
| be nearly impossible for consumers to compare all | | | | print and consider all aspects of the loan, rather |
| of these costs with multiple lenders on their own, | | | | than simply taking the deal with the lowest APR. |
| hence the APR. | | | | Every loan has its own set of conditions, penalties |
| Because the APR takes into consideration all of | | | | and restrictions, so the cheapest rate may not |
| the various fees and charges associated with | | | | always be the most suitable product for you and |
| your loan, it is almost always higher than the | | | | your situation. |