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Glossary
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Annual Percentage Rate (APR)
- The annual percentage rate of charge is a measurement of the total cost of borrowing money, which makes it easier to make a fair comparison between different mortgages or loans on offer.
For loans of less than £25,000 the method of calculating the APR is set out by the Financial Services Act for mortgages and the Consumer Credit Act and all lenders have to use the same methods. The APR is usually a little higher than the annual rate of interest because the APR takes into account other charges such as any higher lending charges and any fees payable to the lender and intermediary for setting up or arranging the mortgage or loan.
There are also certain assumptions made when calculating the APR, for example, that interest rates will not change in the future, that all monthly repayments will be made on the due date and that the loan will not be repaid early. |
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