Want to borrow money but feel confused by the interest calculation? You’re not alone, as many borrowers can feel puzzled by what is APR and how this affects the loan amount they need. As a direct lender of short term loans, we try to make this process as simple to understand as possible, helping our customers choose repayments that fit their budget when they need a quick loan.
In this short guide, we’ll help explain what APR is and why it is important to understand the basics of this when choosing a loan.
What is APR?
APR stands for Annual Percentage Rate. You may be familiar with this common financial acronym when interacting with finance websites, lenders, and even when applying for a phone contract or tenancy agreement. Lenders are required by law to publish an APR for their products so that consumers can compare terms and make a financially savvy decision.
The APR figure shows what the annual rate of interest will be on your loan, and what the full amount to pay will be over the course of a year.
This will include the interest and any additional fees on the loan. This means you may notice that the APR is higher than the interest rate advertised as it includes any additional fees (depending on the lender). The lower the APR, the less the cost of the loan you are considering
Here’s an example to help explain this:
Depending on the type of loan you choose, such as bad credit loans or debt consolidation loans, the APR will differ when compared to a payday or personal loan. This is where it’s important to understand how APR is calculated and what it means for types of loans that you borrow for much less than 12 months, such as small loans for 3 – 6 months.
How is APR calculated?
APR is calculated by taking the total amount of interest and fees that will be paid over 12 months, dividing it by the total amount borrowed. There are two types of APR you may see – representative APR and personal APR.
Representative APR – this is where the lender advertises a rate that at least 51% of approved applicants have received. This means that the other 49% didn’t receive this advertised rate and may have paid less or more on their loan overall.
Personal APR – this is the actual APR you receive once approved. This could be the same as the advertised rate, or it can be higher or lower.
It’s important to keep this in mind when looking at the APR calculation, as the representative APR is not necessarily what you will receive when applying for a loan. Using a loan calculator is the best way to work this out for yourself when comparing loan options. All you have to do is enter the amount you want to borrow and how long for, and the lender’s calculator will give you an example with their APR included.
Find the Loan & Repayments That Work For You
At QuidMarket, we are here to help borrowers when the unexpected happens. When you need cash quickly and have no other options, finding an affordable loan option to cover a short term emergency is crucial. That’s why we have made our application process as simple as possible and you can use our loan calculator before applying to see how much a loan between £300 – £600 could cost over 3 – 6 months of repayments.
Whilst the representative APR on short term borrowing can be very high, it’s important to remember this represents interest paid over 12 months, not the shorter term that you’ll have the loan. The FCA introduced a price cap in 2015 to ensure that borrowers will never pay more than 100% of the loan amount borrowed back in interest and fees, so compare your options and look at the repayments to help show the interest amount and the repayments you can expect.
If you have any questions, please feel free to contact our team. You can also visit Money Helper for further information on borrowing and your finances. To look at starting an application to see if we can help with small loans, click apply now.