Interest Rates
The Annual Percentage Rate (APR) applied to a loan is the rate of interest that the borrower will be charged on the loan per year. Loan providers are obligated by law to publish the APR of loans, to enable customers to work out the total cost of a loan and make comparisons between different lenders.
You may often hear the term "typical APR". This refers to the published interest rate, yet less widely known is that lenders are only required to offer this rate to two-thirds of their customers, and that a substantial number of applicants (one-third) could be charged considerably more. Applicants with a poor credit score, or other 'high risk' groups such as the self-employed can expect to be offered a higher interest rate (or APR) than 'lower risk' customers.
As a general rule the lower the interest rate, the cheaper the loan; however, if two different lenders are offering the same APR, the loan with the shorter repayment period will be the cheaper choice. You may be tempted by a loan with a longer repayment period which has lower monthly repayments, but due to the way that interest accumulates, you will usually end up paying much more for the same loan. You should also be aware that extra charges such as those for late or early repayment and Payment Protection Insurance are usually not included in the APR, and should be taken into account when comparing the full cost of loans.
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