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The Importance of ‘APR’ & ‘APR Representative’

Posted By: Bluestone Credit Management

Posted: 04th April 2022

Research undertaken by one of the UK’s challenger banks and published in March suggests that six million people in the UK have borrowed money without even knowing what Annual Percentage Rate (APR) means.

APR, or Annual Percentage Rate is the term used to outline the total cost of borrowing for a year. It includes standard fees and the interest you will pay.

Consumers can use the APRs published by lenders and brokers to compare the cost of borrowing from different lenders. However in making comparisons, it is important to understand two
additional factors;

  • Always compare products on a like for like basis – this means the product and the length of agreement. A mortgage APR on a 40 year agreement is not the same as a personal loan agreement over 5 years.
  • Understanding ‘Representative APR’ – this has to be displayed in all financial promotions covered by the Consumer Credit Act 1975

So What is the ‘Representative APR’?
‘Representative’ is the clue, just because an APR is being advertised, it does not mean that every applicant will be accepted, nor does it mean they will be accepted at the APR advertised, this is entirely legal.

The ‘Representative APR’ refers to the rate, or lower, that at least 51% of customers accepted by a lender will be offered.

If a loan is advertised as being 9.9% representative APR, it means that 51% of accepted applicants have to get that rate. The other 49% of accepted applicants will get a different rate, usually higher rate. The calculation does not take account of people whose application is declined. (which is usually higher). Of course, some people will be rejected outright.

When shopping around for a loan rate, it can be easy to believe that the lender promoting the lowest representative APR is the smart choice. However, this may not be case, many lenders will offer an APR based upon each person’s individual circumstances. It means the rate offered could be the one advertised, but for 49% of people accepted that will not be the case and that does not include those people whose application is rejected. The key to getting the best rate is to have a good credit score and building this over time can help people to get the best APR, or at least, the one that matches their circumstances.


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