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Sunday 24th August 2008
For those looking at taking out any form of credit, whether this is a credit card, a mortgage or a standard loan, the APR (Annual Percentage Rate) is something which needs to be understood in order to get the best deal. It was brought in by the financial regulator so that all credit terms could be compared on the same basis. So what does the APR show you?
As well as expressing the basic rate of interest which a borrower would pay on the funds they receive it also takes into account any one off charges or annual fees. Some financial institutions used to quote their basic rate of interest on credit cards, loans, etc and quote their one off or annual charges separately. This allowed many to top the performance tables in the various financial magazines when they were not the cheapest in the market after all charges were taken into account.
For example a simple loan with an interest rate of 10% per annum and no other charges would quote an APR of 10%. However, a loan which charged 9% may look better on the surface but when you take into account say a £500 set up fee and £50 annual charge for statements, etc this can change the picture substantially. Always compare the APR figures not the basic rates of interest. |
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