Have you ever applied for a loan, credit card or mortgage? If you have, you may well have heard the term APR.
But what does it actually mean and how can it affect you?
If you haven’t a clue what APR is, let alone ‘0% APR representative, don’t worry - we’ve got you covered. Let’s try and simplify the financial jargon.
Let’s start with interest
It’s important you’re familiar with specific lending terminology so you know exactly what you’re agreeing to when you apply to borrow.
Before we get into the nitty gritty of what APR means, it’s important to understand the basics.
Put simply, APR refers to the cost you must pay in return for borrowing money. So, as well as paying back what you borrow, you‘ll also pay an interest charge on top of that.
You’ll see an interest rate advertised when you apply for a credit card, loan or mortgage. But there’s no guarantee you’ll get this one – depending on your credit history and other circumstances, you may be offered one that’s different to the APR you saw advertised.
What does APR stand for?
Firstly, let’s break this one down. APR stands for Annual Percentage Rate. Now, don’t let the jargon confuse you. APR simply refers to the total rate lenders will charge you per year for taking out a credit card, loan or mortgage including the interest and any other fees or charges.
The key thing to note is ‘annual’ - APR is the total cost you’ll have to pay back on what you borrow over one year. So as well as interest you may also have to pay arrangement or annual fees.
Lenders legally have to display a representative APR on their adverts. You should use this information to compare products and lenders to make sure you’re getting the best deal for you.
What’s a representative APR?
Representative APR is the rate that 51% of people accepted for that credit card or loan will receive, and this is the rate that’s advertised. Although the lenders promote a specific rate, you may be one of the 49% people accepted who is offered a different rate. And this will come down to your credit history, income and other factors.
For example, if your credit history has been negatively impacted by late or missed payments, you may still be accepted for the credit you applied for, but offered a higher APR.
On that note, it’s worthwhile checking your credit history before applying for credit. This way you’ll have an indication of what lenders can see and any possible errors on your report can be rectified before they affect your chances.
What about the 0%?
Now for the ‘0%’ in ‘0% representative APR’. With some types of products, lenders offer a 0% APR promotional period to entice new customers. These introductory deals can last anywhere between a few months and several years.
And yes - if you’re accepted, you won’t pay any interest during the promotional period, as long as you pay off your balance in full before the 0% deal ends. If you break any terms of the credit agreement, such as miss a payment, you’ll more than likely lose the 0% benefit.
Again, it will depend on your credit history whether you’ll be accepted at this rate. You’ll usually only be accepted if your credit history is flawless.
Remember; applying for credit still leaves a footprint on your credit history. If you’ve been rejected by a lender this will be visible on your report and can affect your ability to borrow in the future.
So there you go – we hope we’ve been able to simplify things for you. Remember to shop around for the best APR to make sure you’re getting the best deal.
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