Best Buy Mortgages Glossary - Annual Percentage Rate (APR)
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Annual Percentage Rate (APR)
The total charge for the loan including fees and interest
expressed as a percentage. Every firm in the business
of lending money or advancing credit is required by law to quote
this rate. It will be only one of a number of interest rates you
may see quoted. It is also likely to be the highest of them.
Personal loans, credit cards, mortgages and overdrafts may all
be quoted at introductory rates of interest that sound
enticingly cheap. However, what those introductory rates fail to
include are any arrangement fees you may be charged for loans
and they also won't immediately reflect any higher rate of
interest that your borrowings will ultimately revert to. This is
where the APR comes in. It was originally introduced as part of
the Consumer Credit Act of 1974.
The headline quoted rate on loans and credit cards may be the
rate of interest you pay per month or per year, but it's the APR
figures (usually shown in brackets) which calculates the total
amount of interest that will be paid over the whole term of the
loan.
The APR should also take into account any other charges which the
borrower has to pay. So, if you see a 'too good to be true' loan
offer, fixed at a surprisingly low rate for a short period of
time, ask yourself how much it could really cost by checking out
the APR - it is likely to be substantially higher.
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