Logbook loans can be a great help when it comes to obtaining finance quickly and easily, but it is equally important to understand what is APR when you compare the cost of any type of loan.
APR definition
The Financial Conduct Authority (FCA) defines APR as:
“APR stands for the Annual Percentage Rate of charge. You can use it to compare different credit and loan offers. The APR takes into account not just the interest on the loan but also other charges you have to pay, for example, any arrangement fee. All lenders have to tell you what their APR is before you sign an Agreement. It will vary from lender to lender.”
The Annual Percentage Rate (APR) will let you know how much it will cost you to take out a loan over the course of a year, including any fees or charges, which helps you compare the cost between different lenders.
In the UK, it is a legal requirement that all loan providers show the interest rate and APR of their credit products to help consumers make a more informed decision on their borrowing.
Interest rate vs APR
The interest rate refers only to the interest charged on a loan, and it does not take fees or charges of obtaining a loan into account. In contrast, APR is the combination of the interest rate and any other costs or fees involved in obtaining the loan. As a result, the APR tends to be higher than the loan’s nominal interest rate.
APR loan calculation example
If you were to borrow £1000 over 3 years at 10% APR –
Year 1 interest – £1000 x 0.10 = £100 + £1000 = £1100
Year 2 interest – £1100 x 0.10 = £110 + £1100 = £ 1210
Year 3 interest – £1210 x 0.10 = £121 + £1210 = £ 1331
So at the end of the 3 year loan period, you will have paid a total of £1331.
What is representative APR?
Representative APR means that at least 51% of successful applicants will receive the advertised representative APR, and up to 49% of the remaining successful applicants could be offered a higher rate, depending on their circumstances.
What is variable APR?
A variable APR means the percentage rate is not fixed, meaning the APR can increase or fall at any time, which in turn means that your loan repayments could rise or fall during the term of the loan.
As a responsible lender, eLogbook Loan shows its APR clearly, and also lets you see how much your borrowing will cost you by using our online loan calculator.
By comparing APRs you will be able to make a more informed choice when selecting credit cards and loans.
