What is APR?

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Your APR is important for any kind of borrowing you do. Let’s unpack what it means.

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One of the most important - and most confusing - pieces of financial jargon to learn is APR. It's used in almost every type of borrowing, from personal loans to credit cards.

But what is it, and how does it impact how much you have to pay back?


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What is APR?

APR stands for annual percentage rate. It's designed to show you how much your loan repayments are likely to be.


Is APR the same as the interest rate?

It's similar, but not the same.

The interest rate is just that - the interest on the loan. The APR is more useful because it includes any extra fees or charges that get added.

Your APR gives you a better idea of how much you'll have to repay for the total cost of the loan.


What's the difference between APR and APRC?

APRC stands for annual percentage rate of change. It's usually used when you get a mortgage or secure a loan against your house.

These kinds of loans tend to have different interest rates during the loan term. So the APRC is a useful way of comparing them to make sure you're finding the best deal.

But for unsecured personal loans, APR is likely what you'll need.


How do I calculate my loan repayments using APR?

The easiest way to find out how much you can expect to pay is to use our loan calculator. You can change the APR to see how your monthly payments might change.


Let’s look at two examples of how APR can impact a loan.

Say you want to get a wedding loan of £10,000. And you want to pay it back over four years.

With an APR of 4%, you’ll pay back £225.79 a month. At the end of the loan, you’ll have paid £837.95 in interest.

But if that APR was 6%, you’ll pay back £234.85 a month. This means you’ll have paid £1,272.81 in interest alone.

So a shift in a few percent can potentially be the difference of hundreds of pounds.


What’s representative APR?

Representative APR tells you what APR most people can expect to get.

And by ‘most people’, we mean 51% of people.

The remaining 49% either get a higher APR or their applications are rejected.

This could be because of a poor credit rating, for example.

So it’s worth keeping in mind that the APR you see isn’t necessarily the APR you’ll get.


What can affect my APR?

Your credit score and credit history will have the impact.

If you have a clean record and a great credit score, you’re more likely to get the APR advertised on the loan.

If your score isn’t great, your lender could offer you a higher rate.

So if you want to bring your APR down, see if you can clean up your credit score before applying for the loan.

READ MORE: How to improve your credit rating

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