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What is APR?

APR stands for the Annual Percentage Rate of charge. You can use it to compare different credit and loan offers. Find out more, including what to ask a lender.

The APR includes important factors such as:

  • the interest rate you must pay;
  • how you repay the loan; the length of the loan agreement (or term); frequency and timing of instalment payments; and amount of each payment; and
  • certain fees associated with the loan.

All lenders have to tell you what their APR is before you sign an agreement. The APR will vary from lender to lender. Generally, the lower the APR the better the deal for you, so if you are thinking about borrowing, shop around.

But don’t just look at the APR. It doesn’t include all the costs associated with a credit agreement – such as charges for late or missed payments, or balance transfer fees on a credit card. And the APR works best if you are comparing similar types of credit, over similar periods. Also look at the total amount payable – and check that you can afford the repayments.

Questions to ask the lender

If you find a deal with a low APR, ask the lender the following questions:

  • Does the interest included in the APR vary, or is the rate fixed?
    If the rate is variable, your repayments could go up or go down. If the rate is fixed, your repayments will stay the same.
  • Are there any charges that are not included in the APR?
    This could cover charges for optional payment protection insurance, default charges (for missing a payment or being late or going over your credit limit), and certain other charges such as balance transfer fees. Make sure you understand::
    • what the extra charges are;
    • whether you really need the services offered;
    • how much you would have to pay; and
    • when you would have to pay.
  • What are the conditions of the loan or credit and do they suit you?
    For example, do you have a choice about how and when you make the repayments? If you suddenly have spare money, can you pay the loan off early – in whole or part? Are there charges for early repayment, and if so how much? What if you want to change the date of regular payment, for example if you change jobs?
  • Can you afford the monthly payments?
    A more expensive loan (with a higher APR) could have lower monthly payments if they are spread out over a longer period of time. That might suit you better if your budget is tight, but you will pay more in the long run. Check that you can afford the regular repayments – and that you will be able to keep up payments over the term of the loan. What if interest rates rise, or your circumstances change? You may want to protect your borrowing – see Getting help.

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Top tips

Use the APR to help you shop around and compare deals. But also look closely at the interest rate and charges, and check that you can afford the repayments.