What is the APR and how do you compare loans with the APR?

The APR or Annual Percentage Rate shows what it costs you to borrow on a standard basis. It can vary immensely from lender to lender and product to product. You can compare the cost of using different loans and also borrowing in other ways using the APR.

An APR takes into account:
  • the interest you must pay;
  • any other charges you must pay - for example, an arrangement fee or the cost of payment insurance; and
  • when and how often you pay the interest and charges.

The higher the APR the more you will pay in interest. Although the differences in APR may seem small, the amount of interest you will be charged can become substantially different if you are paying off a loan over a long period of time or have taken out a loan for a large amount of money.

The APR does not take into account charges you might have to pay, such as an early repayment charge if you pay off the loan before the end of its term.

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