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Other things to consider

As well as the APR, you should consider other aspects of the loan before deciding whether a particular loan is right for you.

  • The length of the loan agreement

You may be considering two loans that have the same APR but run for different lengths of time. As the APR is the total charge per year, you will have to pay more on the loan that runs for longer. Similarly, a loan with a lower APR is cheaper overall than a loan with a higher APR on a like-for-like basis.

You should also consider for how long you wish to commit to paying back the loan – would you feel comfortable having the debt hanging over you for a long period of time?

  • Can you afford the payments?

The APR gives you information on the cost of a loan, but it doesn't tell you about the payments you must make. With some loans you will have to make payments weekly, monthly or once a year. And some do not require any payment until the end of the loan, when you will be required to pay off the whole loan in one payment.

Think carefully about when you will have to make payments and whether you could afford to do so.

Your payments may vary if the interest rate charged on your loan varies (called a variable interest rate). You should check if the interest rate on your loan varies and whether you can afford the payments if the interest rate rises.

  • What if things go wrong?

The APR does not include costs that may become payable if things go wrong, such as charges for late or missed payments or for paying off the loan early. You should consider these charges carefully.

Top tips

Remember the APR works best as a tool for comparing the cost of loans when loans are considered on a like-for-like basis (for example loans that run for the same length of time).