APR Explained

Understanding APR is a key factor in choosing your new Credit Card. Here, APR is explained.

In the UK, lenders are obliged to disclose the Annual Percentage Rate (APR) of a loan (including Credit Cards & other loans), prior to an application for credit being signed.

The APR is a standardised rate that allows consumers to compare offers from different lenders, and to then make a more informed decision.

Lenders may advertise the monthly rate; however, they must state the APR prior to a credit application being signed. In some instances, lenders must also disclose the APR in advertising, for example, when advertising credit cards for people with a bad credit history.

APR was introduced in to the UK under the Consumer Credit Act 1974; to ensure that loans would be comparable. For all regulated loans, the APR must be shown more prominently than any other rate.

APR takes in to account the true cost of borrowing and, as well as including the interest rate, it also includes other costs such as fees and charges.

The APR is a good guide when comparing deals from different lenders, but it should be remembered that there may be other factors that must be taken in to consideration.

The subject of calculating APR is quite technical and involves concepts, mathematical equations and symbols that many people will find difficult to understand, and is beyond the scope of this article.

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