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Guide to APR
APR stands for the Annual Percentage Rate of charge. APR is a regulatory requirement for consumer finance lenders (credit cards and personal loans) and it intended to provide consumers with a level playing field to compare different loan products by requiring all lenders to calculate one measure of the cost of a loan the same as all other lenders do. This makes APR a valuable metric for comparing different loans but it is not the only metric.
Because the APR calculation is dictated by regulatory requirements, it includes the interest rate as well as certain types of lenders fees in the calculation in order to more accurately reflect the total cost of the loan. But, the monthly payments are calculated using the interest rate and the term. This means that a loan with a higher APR over a 20 year terms might have lower monthly payments than a loan with a lower APR but a 5 year term. To ensure that you can afford a particular loan, you should focus on the monthly payment figure. APR is quite a valuable measure for directly comparing two or more similar loans.
All lenders are required to disclose the APR to you before you sign the credit agreement. If you find a deal with a low APR, ask the following questions:
- Do the charges included in the APR vary, or is the rate fixed?
If the charges are 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 include something like optional payment protection insurance. If so, make sure you understand what they are and when you would have to pay them.
- What are the conditions of the loan or credit and do they suit you?
For example, do you have a choice about how and where you make the repayments? If you suddenly have spare money, can you pay the loan off early, without penalties? Read the agreement carefully - once you have signed it you are legally bound by its terms.
YOUR HOME IS AT RISK IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR
OTHER LOAN SECURED ON IT. All loans are subject to status. Written quotations
are available directly from the lender on request to the lender. A broker
fee might be due on transactions completed through this site.
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