Everything you need to know about APR and high interest rates
What is APR?
APR stands for Annual Percentage Rate.
An annual percentage rate (APR) is a way to measure the cost of borrowing money, typically expressed as a percentage rate. Generally, the APR reflects not only the interest rate but also any fees and charges that you pay to receive a loan.
Why is APR important to borrowers?
APR demonstrates how much it will cost borrowers to borrow a loan for a year. Thus, allowing borrowers to compare interest and fees between various loan lenders. Typically, APR is attached to any type of credit that you have borrowed including payday loans or short-term loans.
In the UK, APR is a legal requirement that must be displayed on all loans so that consumers precisely understand the cost of the loans and credit they apply for. By understanding APR, borrowers can take control of their finances without any nasty shocks when they make their loan repayments.
How is APR calculated?
In a nutshell, APR is the cost of borrowing, which borrowers must pay on top of the loan itself. As a responsible lender, Peachy Loans display their APR rate on all cash loans Peachy offer.
Peachy’s current APR is:
Representative example: Borrow £400 for six months. Total repayment: £699.40 in 6 monthly payments of £116.57.
Interest p.a: 229.95% (fixed). Representative 720% APR.
How does this compare to other lenders in the UK?
For example, when operating in the UK, APR for Wonga was as high as 1,286%. QuickQuid APR is even higher at 1,294%.
This means that if you were take out a £250 loan and pay it back in 3 months, it will cost you a total of £375 with Peachy. The same loan would cost £430 with Wonga or QuickQuid – saving you over £55 in total!
What is representative APR?
If a loan is advertised as being 7% representative APR, this means 51% of accepted applicants must receive the advertised 7% rate. The remaining 49% could be offered a different rate (likely to be higher than the advertised rate) depending on the applicant’s circumstances.
So when applying for credit or loans, be aware that the advertised rate (representative APR) may not be given to you. Ensure that the final rate offered is suitable for you. For example, with Peachy Loans, you will see the offered APR rate on our loan calculator, so you know exactly what you have been offered.
How do lenders like Peachy decide how to charge APR?
Lenders, including Peachy, determine APR decisions based on the circumstances of the customer.
Peachy charges applicants an APR based on several factors including how long you intend to borrow money, and the individual circumstances of the borrower.most vital thing you can do is make sure you read the APR and correctly calculate the repayments, so that you can budget how much you will pay back, both annually and monthly.
If you borrow £2,000 with a 7% APR across one year, assuming you pay your interest in monthly instalments; this means you will pay £140 in annual interest. It is critical to understand how much you will be paying back before you take out a loan.
You will need to budget your current financial circumstances alongside the APR of your loan application to thoroughly understand how much additional cash you will need to put aside for your loan repayments.
APR is a tool best used to compare loans and similar types of credit.
What is variable APR?
It is necessary to note that some APRs are not fixed, meaning that your APR can increase at any given time. Variable APRs are popular with products like credit cards. Thus, if you require credit for a short-term temporary need, it is better to obtain a Peachy loan because the APR is not variable; it remains fixed and is precisely what is written in the loan agreement.
What is Annual Equivalent Rate (AER)?
The Annual Equivalent Rate or AER is the percentage rate for savings accounts, and although not relevant for loans, provides comparisons when comparing interest on your savings with interest on a loan.
How to find a loan with a low APR
Many people with a poor credit rating can find it challenging to obtain low-cost loans and credit. If you are searching for low APR options, you will need to be aware that if your credit has not improved, it will remain difficult to obtain an APR that suits your lifestyle.
Typically, to find loans with low APRs you will need to improve your credit score. One sure-fire way to improve your credit score is to build a credit history by borrowing loans and credit and ensuring that you repay them on time, all the time.
With Peachy payday loans, you will understand that the APR offered is broken down into manageable chunks making minimum repayments affordable to suit those on all budgets.
Does Peachy write the APR clearly on their loans?
As a responsible lender who complies with the UK’s strict borrowing criteria – Peachy is committed to providing borrowers with all the information they require when applying for loans.
Furthermore, to maintain transparency, Peachy’s website displays a repayment calculator that will demonstrate how much you will need to repay your loan. Making it more transparent to calculate actual borrowed numbers as opposed to figuring the confusing APR rate.
Do’s & don’ts of payday loan borrowing
- Do use a calculator to calculate how much interest you will be paying based on your loan’s APR
- Don’t choose payday loans if you do not have a regular income
- Do always be truthful on your loan application to avoid future financial hardship
- Brits are terrible at saving money, but do try to put some money away so you can take advantage of the Annual Equivalent Rate – AER
- Don’t apply for multiple short-term loans simultaneously with different lenders
- Do understand APR jargon like “p.a” which is short for per annum (per year)
APR is one of the most critical aspects of your payday loan that you must understand.
Knowing the APR and how it will impact your repayments is vital if you are to remain in control of your finances. Always use the repayment calculator first before making your loan application.