Interest Rate and APR: Mythbusters!

November 22 2018

What’s the difference between interest rate and APR (Annual Percentage Rate)?

This is a common question when people are looking to borrow money and it is worthwhile taking a moment to understand the difference between the interest rate and the APR on a loan.

Put simply, the interest rate is what you pay on the money you have borrowed each year and is usually expressed as a percentage rate. The APR (Annual Percentage Rate) reflects the true cost of borrowing per year as this rate will cover any fees or charges associated with the loan and not just the interest.

That means it is important to consider the APR when comparing different loan providers so ensure you are aware of what the borrowing will cost you in total per year over the loan lifespan.

Why wasn’t I offered the interest rate and APR advertised?

Lenders will typically advertise a ‘Representative APR’ although this may not be the APR that you are offered. A ‘Representative APR’ means that at least 51% of applicants will receive the advertised APR, or lower.  However, as most lenders will take into account your own circumstances when you apply, it is likely that the APR you are offered is not what you thought you were applying for.

Most lenders also vary the interest rate and APR depending on how much you are borrowing and for how long.

How are we different?

When it comes to interest rates and APR, we are not like other lenders!

No matter what your personal circumstances, how much you are borrowing or for how long, if you are eligible for a loan, our interest rate remains fixed at 4%. This means you know in advance that whether you apply to borrow £1,000 over 3 years or £15,000 over 15 years, the annual interest will always be 4%*.

As the only fee associated with our loans is a Land Registry fee of £20.00**, our Representative 4.2% APR stays close to the interest rate on our standard capital repayment loans.

Capital Repayment Loan, Representative Example

Interest is fixed throughout the loan at 4% (Representative 4.2% APR).

£2,000 60 £36.83 £20 £2,229.98
£5,000 120 £50.62 £20 £6,094.71
£5,000 180 £36.98 £20 £6,697.19
£10,000 120 £101.25 £20 £12,169.42
£10,000 180 £73.97 £20 £13,334.38
£15,000 120 £151.87 £20 £18,244.12
£15,000 180 £110.95 £20 £19,991.57

For more information on other loan products, click here. Please contact us for more information about the loans that are available by filling out a contact form or calling 01823 461099.

* Some Councils further subsidise interest rates depending on the loan scheme and their policy; for more information, please call us.

** If a loan proceeds, Lendology CIC may put a notice on your title deeds (with your consent) and this would notify us if you decide to sell or Re-mortgage your home.  If your home is registered at the Land Registry, a £20 Land Registry fee is payable to register the Title Restriction. If your property is unregistered other fees may apply.  We will tell you about any other fees or costs that you may have to pay if you take out a particular loan.

Loans have a fixed interest rate and Representative 4.2% APR and are subject to status. Missing future payments could affect your credit rating and ability to obtain credit in the future. Lendology CIC may insist on loans being protected at the Land Registry by a Title Restriction.

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