In its simplest
sense, the APR (Annual Percentage Rate) is the
percentage sum that will be added to a loan when
repayments are calculated.
As a means of
calculating what one is required to repay, it
is actually a very handy mechanism for the borrower
as it negates the needs to factor in any additional
costs, set-up fees and hidden charges when deciding
upon which particular loan product to opt for.
The lender is obligated to include all of these
things when calculating the APR, as a result of
which the borrower can simply deal with the bottom
line figure. It does not, of course, take into
account any penalty fees incurred for such things
as late payment, which may vary between lenders,
nor indeed any insurance that you may agree to
pay in addition to your basic loan.
The four considerations
incorporated into an Annual Percentage Rate are
– the interest rate itself, when it is charged
(i.e. weekly, monthly or annually), start-up fees
and any other hidden costs. All these are then
joined together to make the APR, which is the
inclusive figure the potential borrower will be
quoted and the comparator that will be used when
measuring the offer against other quotes.