Annual Percentage Rate Meaning
APR stands for ‘Annual Percentage Rate’ and it is the figure that tells you how much interest you will be charged on your loan on an annual basis. Lenders have to display the typical APR that most people will be charged in all advertising for their loans. If there are any charges associated with the loan then these will be taken into account within the APR. This makes it a useful tool when you are comparing different loans of the same type.
Why Is It Useful To Know The APR?
Comparing APRs can be very useful if you have the choice between more than one loan. Which is good if you want to compare which one is the best value. Generally speaking, the lower the APR, the less money you will pay in interest and charges. If you are solely looking for the cheapest loan. Then you should choose the one with the lowest APR. However, there may be other factors that you want to consider. Such as the length of time that you want to repay the loan and if there is a choice of repayment methods. The APR can be very useful in comparing loans. However sometimes it is not the only thing that you should take into account. Read More >>
What Does Typical APR Mean?
The typical Annual Percentage Rate that you will see advertised is the APR that will be charged to the majority of people who take out this loan. It is the law that lender needs to display the APR that 51% or more of their customers qualify for. However, this also means that 49% of their customers will get a higher APR. Hence you should not assume that the rate that is advertised is the rate that you are going to get. There are a lot of factors that go into determining the APR but you will be told the APR that you will be charged before you sign the loan agreement.
What Is The Average APR Of A Loan?
This all depends on the type of loan that you are applying for as different types of loans will have very different APRs. You should also bear in mind that APRs for the same product can differ. Depending on how good your credit rating is. The average APRs of a whole range of loan products are listed below.
Mortgages – The average APR for a mortgage is around 4%. However, there are a number of different types of mortgages that are available and so this figure can vary quite a lot.
Secured Loans – The Annual Percentage Rate of a secured loan can also vary a great deal. Most of them will be around the 3-5% mark but they can be as high as 99%.
Unsecured Personal Loans – You can usually apply for an unsecured loan from your bank or other high street lenders. These lenders will generally charge a lower APR on a higher loan amount. Loans for £1000 will usually be around 12% but loans for £5000 will be around 7%.
Car Loans – The APR for a car loan will often fall between the 3% and 8% mark. There are a number of factors which can influence the APR you will be charged for a car loan, including whether the car is new or used and what your credit history is like.
Payday Loans – The APR of a payday loan is on average 1295%. Payday lenders would prefer that APR was not used for their loans because they are usually paid back in a much shorter period than one year.
What Are The Differences Between A Fixed Rate And A Variable APR?
Most loan products have a fixed APR which means the rate will not change throughout the life of the loan. This allows you to work out exactly how much interest you will pay. Because the rate will not change. A variable Annual Percentage Rate can change. You will usually only find this type of APR charged on a mortgage. Most variable rate mortgages track against the Bank of England base rate. This means that if the interest rate rises then so will the APR. Therefore your mortgage rate will rise to take into account the extra interest that you will be paying. If the interest rate decreases then the variable APR will also decrease and you will pay less each month.