APR and Interest Rates – What Do They Mean?
If you’re thinking of taking out a loan, there’s a lot of factors you need to consider. One of them, is the APR of the loan. Now, if you’re new to the world of personal loans, it’s understandable if you have no idea what APR is or what it means. So, to help, here you’ll discover everything you need to know about APR and interest rates.
What does APR stand for?
APR stands for Annual Percentage Rate of Charge. It’s the amount lenders charge over the course of a year for the sum of credit borrowed. So, say you take out a small loan of £100 and the APR is 40%. This would mean you would have to pay back £140 in total over 12 months.
By law, lenders have to tell you what the APR will be before you sign the contract. It’s also worth noting that different lenders have vastly different APR amounts. For example, a personal loan from a bank may come with 4% APR. A payday loan on the other hand could feature an APR of 4000%!
This is because payday loans are typically paid back within just one month. So, you’ll never really need to worry about the annual interest rate with these lenders unless you can’t make your repayments.
Understanding the advertised APR
Another thing you’ll want to be aware of, is that the advertised APR may not be the rate you receive. It’s simply given as an example of what you could pay. However, it usually relates to those who have an impeccable credit rating. Your actual APR will depend upon your credit score and personal circumstances.
Is the APR the only fee you’ll pay?
All reliable lenders such as Ocean Finance, include the entire costs of borrowing in their APR. However, it’s important to note that not all lenders do this. You may also have arrangement fees, as well as late payment fees to worry about which aren’t added onto the APR. The lenders small print will reveal any extra charges you could face after taking out the loan.
How can you find out what your rate will be?
Most people never receive the advertised APR, but you will find out how much yours will be before you agree to take out the loan. You will need to fill out a short application in order to determine what you’ll pay. If the application is accepted, your APR will be provided before you decide whether or not to go ahead with the loan.
As you can see, there’s a lot to think about when it comes to APR on loans. However, once you know what it means and how it affects the amount you’ll pay, you can use it to compare different loan offers.
*This is a collaborative post.
