13th April 2021
Understanding the APR on a personal loan

Most lenders advertise the interest they charge on a personal loan as an APR. When you’re shopping for a personal loan, it’s important to understand what an APR is so you can compare loans and choose the best one for your needs.

What’s an APR?

APR stands for “Annual Percentage Rate” and refers to the total cost of your borrowing for a year. In addition to the interest rate, it also includes the standard fees you’ll have to pay for things like administration.

For example, if you borrowed £1,800 over 12 months, an APR of 53.9% would include your annual interest rate of 25.9% per annum (fixed) as well as the standard fees for the loan. You would pay 12 monthly repayments of £188.85, totalling £2,266.20, of which £466.20 is interest.

Why is APR used to compare loans?

When you search for a loan, the different loan options are often ranked by representative APRs on price-comparison sites. APR can help you compare different kinds of loans and credit on a like-for-like basis. Your repayments are fixed at the same amount every month because of how the interest is calculated. At the start of the loan term, your repayments will include more interest but less of the loan balance. Towards the end of the loan term, your repayments will include less interest but more of the loan balance.

What’s the difference between a Representative APR and a Personal APR?

Although the APR is a useful comparison tool, it’s important to understand that this isn’t necessarily the rate you’ll receive from the lender. This is because the APRs that you see advertised are based on a representative rate that at least 51% of those accepted for the credit deal will get.

Almost half the people who are approved for the deal will receive a personal APR based on their credit history and financial circumstances, as well as the loan amount and length of their borrowing. A personal APR could be the same as the representative rate, or it could be higher.

This also means that the lender with the lowest advertised APR isn’t necessarily the one who will give you the best rate.

How can I find out my APR?

To find out what your APR will be you can apply now. We only use quotation searches so the search won’t be recorded on your credit file unless you take out the loan. We will offer you a rate based on our assessment of your personal financial circumstances, including your credit score. Read our tips on how to boost your credit score here.

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Representative 44.8% APR

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