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Annual Percentage Rate


APR or the Annual Percentage Rate requires careful consideration before opting for a loan agreement. Each lender will provide you with the Annual Percentage Rate of the loan and it will vary from one lender to the other. A good loan deal should have the lowest APR unless there are other considerations in the loan agreement apart from interest cost that is more important to you.

The APR calculation depends on numerous factors. They are
  • The annual rates of interest
  • The period of which the loan is to be repaid
  • The payment pattern i.e. quantum of each installment and frequencies of payment
  • Loan processing fees
  • Mandatory insurance premiums such as payment protection insurance
APR has good significance with respect to credit cards.

Credit Cards with Fixed APR and Variable APR

Some credit card companies offer cards at fixed rates of interest and hence the interest rate does not change frequently. In case the company wants to change the rate of applicable interest rate they have to provide written information to there clients.

Credit Cards are also available with variable rates of interest. The interest rates keeps fluctuating based on certain base interest rate. Usually this rate is the base rate or the standard variable rate provided by the Bank of England.

Credit Cards with Multiple APR’s

Some credit card companies also charge their clients at varied interest rates depending on the transaction type. A withdrawal from the bank ATM machine may be charged at a different rate while a credit purchase might be charged on a different rate.

Some card companies also charge based on a tier. For example the first £1000 purchase is charged at a rate different from the second £1000 purchase.

A penalty Annual Percentage Rate is also charged in case of late payments. Also certain card companies charge an introductory APR.

Consideration

An important consideration is that are you able to afford the monthly installments. A lower APR is offered on higher monthly installments as you are expected to repay the loan early. Therefore a lower Annual Percentage Rate might not be suitable for you if you are not able to afford the high monthly installments.