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APR… Annual Press Release? Accreditation in Public Relations? American Public Radio? It could be all these things, but for us the one we are talking about is “Annual Percentage Rate.”
If you’ve ever seen an advert for any kind of borrowing credit you’ll certainly have seen it mentioned. Well, you might not have actually seen it since it can be buried in small text at the bottom of the advert, especially if the number is very big – looking at your payday lenders.
The Annual Percentage Rate (or APR) is something that lenders are legally required to display against their loan products. It was designed to help us borrowers easily compare loans from different lenders, or even compare different types of borrowing easily by showing the “true cost”. The APR has to take into account not only the interest rate you’re charged, but also any fees or other costs you’d incur over the year when borrowing. An example is if a credit card company charges an annual fee for their card as well as charging interest on any unpaid balances.
So far, so good. But of course it’s often not going to be that easy. Many companies use what’s called a “Representative” APR on their advertising.
This is the rate that a minimum of 51% of successful applicants could be charged. No prizes for guessing that these are going to be the most creditworthy 51%, which means that pretty much half of people are going to be charged more than this rate.
So never go in assuming the advertised rate is what you’ll get.
(Credit) cards on the table…
If you’re looking at credit cards, remember that the APR only shows the rate for borrowing money for buying things with the card.
If you want to take cash out of the hole in the wall with the card, you might be in for a surprise when it comes to how much paying that back will cost you. A lot more than your rate for purchases on the card.
If you’re looking for a credit card deal for an existing balance transfer, forget the APR and make sure you compare balance transfer rates instead as this is the rate you’ll be paying and for how long. Using independent comparison sites will help you to dig a little deeper and make sure you’re comparing like with like.
Only the best will do for me
As ever, to maximise your chances of getting the best loan rates you need to make sure your credit rating is as good as it can be.
If you know that your credit report is going to flag up some issues then it’s highly unlikely you’ll be offered the APR you’ve seen on the ads or through the comparison sites. If your credit file is less than squeaky clean then the High Street lenders may offer you much higher borrowing rates. Stay away from payday lenders and their eye-watering 4-digit APR numbers…