These days, you don’t have to search that hard for a loan. The tricky part is understanding all the terms and conditions before applying for one.
Fortunately, APR terms are so straightforward that you could understand in the time it takes to have a cup of tea. So, please keep sipping and reading as we explain how APR terms work in the UK.
The short answer is Annual Percentage Rate. But, APR is more than an abbreviation. It’s the cumulative annual cost banks and other loaning institutions charge on loans or credit cards. Such charges also include prescribed yearly fees, interest and your standard banking fees.
Let’s imagine that you need a £ 20,000 quick loan over 4 years to acquire a flat. Your APR ( let’s say 5.5%) will be inclusive of annual interest rates as well as the standard fees that apply to your loan.
In this scenario, you’ll need to make 36 monthly repayments each of £456 for a total of £ 21,891. So, that’s the £20,000 you borrowed plus a total interest of £1,891.
But, why do the repayments round off to the same amount each month? Well, your loan repayments include more of the interest charged than your loan balance at the start of the terms. As the terms you reach the end, the repayments include less of the balance and more interest.
APR makes comparing credit cards, fast loans and other lending products such a breeze. For instance, price comparing sites usually use a representative APR to rank loans.
Representative in such a context implies that at least 51% of all applicants received the same or a lower APR rate as advertised. However, you are subject to a personal APR once you apply for a loan.
A personal APR takes a more in-depth look at your circumstances. Therefore, the loan might come at a lower or higher cost than the advertised representative APR.
Personal APRs consider the length of your loan term as well as your financial statement and borrowing history. Keep that in mind, even as you shop for loans based on the strength of their representative APR.
A representative APR will only help you when comparing various loan and credit card products. You’ll only know you’re liable to pay after making a successful loan application. Banks also commonly perform financial background checks before giving you an offer.
Such, checks may also include reports from credit reference agencies. These changes will be logged into your file and may affect your credit score.
As you can see, establishing your personal APR can save you a lot of time and disappointment, especially before you make a loan application.
So, always opt for a lender that can find out your exact personal APR before you even apply. It also helps if your lender can readily offer a provisional loan limit. It’s also wise to shop around for the best possible option before settling.