Credit Card APR Explained
What is APR?
APR stands for the Annual Percentage Rate of charge. It can be used it to compare different credit and loan offers. APR on credit cards is calculated monthly - based on the amount currently on your card. The monthly interest is calculated as if your current card balance would remain the same over a year; the interest on the amount over a year (APR) is worked out and divided by 12 to give the monthly interest.
All lenders must tell you what their APR is before you sign an agreement. It will vary from lender to lender. Usually, the lower the APR the better the deal for you, so always be prepared to shop around.
Questions to ask when looking into APR:
Do the charges included in the APR vary, or is the rate fixed? If the charges are variable, your repayments could go up or go down. If the rate is fixed, your repayments will stay the same.
Are there any charges that are not included in the APR? This could include something like optional payment protection insurance or an annual charge. If so, make sure you understand what they are and when you would have to pay them.
What are the conditions of the loan or credit and do they suit you?
For example, do you have a choice about how and where you make the repayments? If you suddenly have spare money, can you pay the loan off early - without penalties?
The Office of Fair Trading (OFT) website has a ready reckoner that can help you calculate how much borrowing at different rates of interest can cost you at www.oft.gov.uk
Useful Resources
Financial Services Authority - Consumer Advice
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