Types of Interest Rates

Types of Interest Rates:

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APR

APR (Annual Percentage Rate) is basically an estimate of how much interest you will need to pay on your loan every year. However, how much total interest you will actually end up paying for the duration of the loan depends on how the interest rate changes over time.

APR is meant to help you compare interest charges between different financial products, and also to give you an idea of how much interest you are currently paying on various loans you may have already taken out.

In general, a lower APR is better from the perspective of the borrower. But as it is usually subject to changes in the Bank of England base rate, APR should not be viewed as a fixed amount if you are planning to borrow money on a long-term basis.

APR Calculators

The Trading Standards Website has an APR calculator to help you figure out exactly what the APR on your loan involves.
Click here!

Example A:
Suppose you borrow £3000 with an APR of 7.8%, to be paid off in full within five years: the estimated amount you will pay each month will be £135.05. By the end of the loan’s duration you will have paid a total of £3,241.20, or 8.04% interest on the £3000 you borrowed.

Example B:
A long-term loan for a larger amount is computed the same way, though the APR is usually reduced. If you borrow £10,000 with an APR of 6.7% to be paid off in full within five years, the amount you will pay each month is estimated to be £113.56, for a total of £13,627.20 by the end of the loan’s duration. The actual interest you will have paid overall is 36.27% of the amount you borrowed. Because of the comparatively high interest, lenders often lower the APR for large loans.