What is Representative APR?

It’s not always easy to work out the cost of finance. Even when it seems like you’ve got a great deal, it can be tricky to know how it stacks up against the interest rates offered by other providers.

APR is a source of confusion for many borrowers when trying to choose where to apply for credit – especially since it’s variously described as a typical, representative, personal, and exact.

This guide explains what representative APR is, and outlines everything you need to know about annual percentage rates.

What is APR?

APR stands for Annual Percentage Rate. It’s a way to measure the cost of borrowing money over a year by combining the interest rate with certain other charges that may be applied.

The result shows how much you’ll have to pay over a year when borrowing money, and it’s calculated using a standardised formula from the Consumer Credit Act 1974. This means that it can be used to compare the cost of borrowing money since different lenders calculate APR in the same way.

What is Representative APR?

Everyone has a different credit record, and so not everyone gets the same APR when they borrow money. This can make it difficult for lenders to advertise their rates since not everyone will pay exactly the same.

Representative APR deals with this issue by showing the rate that’s offered to at least 51% of people. Others are likely to pay a higher APR, and the rate doesn’t include those who are rejected by the lender outright.

All of this means that representative APR is just an indication of the rate you might get.

What is Exact APR?

Exact APR is also known as personal APR. It’s the interest rate that will actually be applied to your loan and is calculated by lenders after considering your personal circumstances, credit score, and financial history.

Sometimes described as a ‘real rate’, exact APR is an accurate representation of what you’ll pay. Some lenders allow you to find this out when you make an initial application when they’ll conduct a ‘soft’ credit check to help them determine which rate to apply.

What is APRC?

APRC stands for Annual Percentage Rate of Charge. It’s one of three rates you’ll be given when you apply for a mortgage or another form of secured loan. 

The APRC combines the initial deal rate and follow-on rate to indicate how much you’ll pay overall for secured finance.

While ARPC can be helpful when measuring the cost of secured lending, it doesn’t apply to unsecured personal loans.

How to find the interest rate of a loan

To understand the cost of a loan, you’ll need to look out for the interest rate and know what different rates mean. On a basic level, an interest rate is a percentage of the loan. An interest rate of 20% on a loan of £100 would leave interest of £20. The total amount to be repaid would therefore be £120, taking both the interest and the amount borrowed into account.

Looking at the APR can help you to compare the cost of different loans, but it won’t necessarily indicate how much you’ll end up repaying overall. This is because APR represents the cost of borrowing over a year – and many loans simply don’t last for that long.

Will getting an APR quote damage my credit score?

Lenders must conduct a hard credit check before they can approve your loan application or decide what rate of interest to apply. They may conduct a ‘soft’ credit check in the early stages of an application to determine your eligibility, and this will never harm your credit score.

A full credit check must be carried out before they make a formal offer. Too many full credit checks over a short space of time could damage your credit score, as each will leave a temporary marker on file for other lenders to see.

Will I get the representative APR?

The representative APR is the rate that lenders offer to at least 51% of their customers. This means that almost half of borrowers get a different rate, depending on their credit status, personal circumstances, and other factors.

Whether you get the representative APR will depend on many things, and there is no guarantee that you’ll be offered the best rate when applying for a short term loan. This means that your personal APR could differ from the representative rate advertised by the lender.