Articles > Annual Percentage Rate

APR stands for annual percentage rate, and is in basic terms the overall cost of the loan per year, and is designed to allow consumers to compare loans on an equal basis. Because of the complexities involved in calculating the costs involved with loans, and the various ways in which additional costs can be added, the Government introduced the concept of the annual percentage rate charge, which is a percentage figure that defines the total cost of the loan.

The annual percentage rate takes into account all of the costs associated with the loan, including the interest rate, arrangement fees and any other miscellaneous costs in order to give a figure that covers the total costs involved. The idea of the APR figure is to allow direct comparison between loans, so if you take two loans for the same amount and with the same repayment term, the one with the lowest APR is the one that will cost the least.

It should be noted that the APR figure does not take into account costs that the borrower may face in penalty charges should payments be late or through any other form of violation of the conditions of the loan.

While the APR is a good gauge for the cost of a loan, it is not the only aspect that you should consider when choosing your loan, for example you should look to see if there are any charges associated with early repayment, as this may impact you should you decide in the future to settle the loan early, or refinance the loan with one of a lower rate of interest.