A
Annual Percentage Rate (APR)
Every firm in the business of lending money or advancing credit
is required by law to quote this rate. It will be only one of
a number of interest rates you may see quoted. It is also likely
to be the highest of them.
Personal loans, credit cards, mortgages and overdrafts may all
be quoted at introductory rates of interest that sound enticingly
cheap. However, what those introductory rates fail to include
are any arrangement fees you may be charged for loans and they
also won’t immediately reflect any higher rate of interest
that your borrowings will ultimately revert to.
This is where the APR comes in. It was originally introduced
as part of the Consumer Credit Act of 1974.
The headline quoted rate on loans and credit cards may be the
rate of interest you pay per month or per year, but it's the
APR figures (usually shown in brackets) which calculates the
total amount of interest that will be paid over the whole term
of the loan.
The APR should also take into account any other charges which
the borrower has to pay. So, if you see a 'too good to be
true' loan offer, fixed at a surprisingly low rate for a short
period of time, ask yourself how much it could really cost
by checking out the APR – it is likely to be substantially
higher. [Back to top]
Applied or Nominal Interest Rate
This is the rate of interest which the lender uses to calculate
the amount you actually owe them. It will not be the same as
the APR and it will be a slightly lower figure, because it does
not include all charges. [Back to top]
Arrears
Arrears means that you have missed one or more repayments
on a loan or mortgage, but have not yet defaulted on your
loan.
Arrears are a factor in having a bad credit rating, but
are not as serious as defaults or a CCJ [Back to top]
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