Understanding APR interest rates


Before taking out a loan or applying for credit, it’s important to understand how much the repayments will be and whether you can afford them.

When shopping around for the best loan deals, it’s important to keep an eye on the APR interest rate and how much you will have to pay for credit.

An APR (annual percentage rate of charge) interest rate is a standard way of showing the cost of borrowing and allows you to compare credit products to help you work out which is the cheapest. You will see it displayed on adverts for credit cards, loans and at your credit union.

The lower the APR then the less interest you will have to pay but there are other factors to consider:

  • Is it a representative APR? A representative APR only needs to be given to 51 per cent of accepted customers. That means almost half of consumers who apply for a loan or credit card may end up paying more interest than they first thought. Credit Unions of Wales offer actual interest rates, which means 100% of those accepted for a loan pay the rate advertised.
  • How long is the loan? It’s all-too easy to look at a low weekly or monthly repayment amount, and think it’s affordable. While spreading the payments over a longer term means you pay smaller amounts per month, it can also mean you pay more money in total over the loan period.
  • Additional charges: Check for early repayment fees, charges for late or missed payments.

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