Two lenders quote you 7.9%. One charges a £199 arrangement fee, the other does not. They are not the same loan, and the interest rate will not tell you that. APR will.
Interest rate versus APR
The interest rate is the cost of the money. The annual percentage rate is the cost of the whole arrangement — interest plus any compulsory fees — expressed as a single yearly figure. It exists precisely so that two products with different fee structures can be put side by side.
Where APR is less useful
- On a mortgage, the headline is usually the initial fixed rate; APRC assumes you stay on the lender’s variable rate for the whole term, which almost nobody does.
- On a credit card, APR assumes a constant balance, which is not how most people use one.
- On a very short loan, a modest flat fee produces an enormous APR that is technically correct and practically misleading.
The number that actually settles it
Total amount repayable. It folds in the rate, the fees and the term in pounds rather than percentages, and it is the figure that comes out of your account. Every quote we give shows it before you apply.
Watch what happens when you lengthen the term. A longer loan almost always has a lower monthly payment and a higher total cost. Both are true, and which matters more depends entirely on your circumstances — but you should be choosing, not discovering.
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