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What's an APR?
The Annual Percentage Rate (APR) allows you to compare the complete cost of borrowing of one loan against another - the loan with the lowest APR will be the cheapest overall.
| Lender A | Lender B | |
|---|---|---|
| Balance Financed | £5,000 | £5,000 |
| 24 Monthly Rentals | £250 | £240 |
| Upfront Fee Payable | N/A | £300 |
| Total Amount Payable | £6,000 | £6,060 |
| APR %* | 19.7% | 22.2% |
* APRs quoted are for illustration only and do not reflect current rates.
Assuming you were borrowing £5,000 over 2 years with monthly payments of £250, the APR would be 19.7%.
Lender B may make payments available at £240 (£10 per month cheaper), but will be charged a set up fee of £300 with the first payment.
The second lender has the cheaper monthly payments, but because of the effect of paying £300 so early in the agreement, it affects your cashflow and therefore the true cost of borrowing is higher than Lender A, hence the higher APR.
