Have you been shopping around for a secured loan? We bet you’ve already been baffled by the fancy jargon lenders and brokers use.
If you have, you’re certainly not alone. It’s easy to get confused by the complex financial terms lenders have to use, and that’s not good, because if you don’t understand something, how can you agree to it or decide if the product or service is right for you?
So, we’re going to try to simplify loan-speak, starting with APR typical variable!
Let’s begin by splitting the phrase up into the three separate words.
If you’ve been looking at anything to do with loans – or if you’ve seen any credit card or loan adverts on TV – you’ll most likely have seen APR at some point. It’s one of the most commonly-used credit terms, but what does it mean?
APR simply stands for annual percentage rate. This means the amount of interest you would be charged per year by a lender for taking out credit with them - together with any charges that you have to pay (such as arrangement fees). In this case, we are talking about the amount of interest and charges you would have to pay over the course of a year if you took out a secured loan.
APRs are a good way of comparing the total cost of credit – for any given amount you borrow, a higher APR loan will cost you more than one with a lower APR.
Here the word typical means that at least 66% of all the people who apply for a secured loan with the lender – who are accepted – will receive the advertised interest rate.
For example, if the lender advertises 16% APR typical variable; this means at least 66% of the people who are accepted for a secured loan will be charged 16% APR. The other 34% of people accepted will receive a different rate – usually higher.
The reason for this difference usually depends on a person’s credit history. Those with patchier credit records may receive higher interest rates, while people with near-perfect credit scores could receive lower rates. The amount you borrow and how long you borrow for could also affect your interest rate.
This last word relates to the interest rate you pay over the duration of the loan. If a loan is variable, this means that the interest rate could change while you’re repaying your loan.
In some instances, the interest rate may go up, which means your monthly payments would rise. However, it could also be the case that the interest rate goes down, which means you would be paying less.
It’s difficult to determine whether or not interest rates will rise or fall (no one has a crystal ball!) as individual lenders set their own rates – sometimes in relation to the rates set by the Bank of England. But to be sure you’re covered if rates do rise, think about whether you could comfortably afford your repayments if they increased. If you’re borrowing right at the limit of what you can afford, you might wish to reconsider, as a rise in interest rates could spell financial trouble later down the line.
Piecing them together again
So, now you’ve got a better understanding of each term, let’s stitch them back together and look at them as a whole in this example.
Here at Ocean, we offer secured loans at 15.3% APR typical variable. This means that at least 66% of people who take out a loan with us will pay 15.3% in interest per year, where others may pay more or less. Dependent on the Bank of England’s base rate, this 15.3% rate may go up or down over the course of the loan.
And there we have it. We hope this guide has helped you understand APR typical variable, but if you have any more questions, don’t hesitate to get in touch. You can contact us via Twitter or Facebook.