What is APR and APRC?

APR and APRC explained

If you’ve ever thought about applying for a loan or taking out credit, then you’ve probably come across two terms; APR and APRC. They’re everywhere, but a lot of people are unaware of what they actually mean – particularly with regards to taking out a loan.

As a result, we’ve got all the information you need to learn what each term means, how they differ from one another, and what they have to do with loans.

APR

To begin, APR stands for Annual Percentage Rate, and APRC stands for Annual Percentage Rate of Charge. As you can imagine, both of these terms are very similar, but what do they mean?

In essence, when you apply for a loan, you’re shown the APR – which is basically the interest rate of that loan. In simple terms, it’s a percentage that shows you how much the loan will cost you every year.

As an easy example, let’s imagine you applied for a personal loan of £20,000 and it’s shown to have a 5% APR. All this means is that the cost of that loan will be £1,000 every year until you’ve repaid it. The ‘cost’ is inclusive of the interest and any additional costs put on by the lender.

The APR will be shown on many different types of loans, apart from a mortgage. When you apply for a mortgage, you get shown the APRC.

APRC

The Annual Percentage Rate of Charge is one of three main figures you see when applying for a mortgage. Alongside this, you get the initial deal rate and the follow-on rate. The initial deal rate shows the interest rate you get for a period at the start of your mortgage. Most mortgage providers offer deals where you have a specific rate for a couple of years or so, and then it can change. The follow-on rate is the interest rate you get after the initial period comes to an end.

So, where does the APRC come into play? Well, it looks at both the initial and follow-on rates – and any extra fees – then comes up with a percentage which gives you an accurate look at how much the mortgage will cost you each year until it’s repaid.

What’s the purpose of an APR/APRC?

The main purpose of both an APR and APRC is simply to allow individuals to compare loans. By looking the APR of a loan, you can assess whether or not it’s more affordable than other offers out there. This allows you to quickly find the cheapest deal from the best lender. A loan repayment calculator works by using the APR figures to show the interest charges and monthly repayments.

The same goes for an APRC, only you’re just comparing mortgages. There is one critical thing to note with an APRC; it assumes you stay with the same mortgage for the whole duration of it. In reality, a lot of people may switch to a different mortgage after the initial period, so judging a product based on the APRC is only really recommended if you have intentions of sticking with the same mortgage for the full duration.

So, in summary; both APR and APRC show how much loans/mortgages will cost you each year. If you’re looking to apply for a loan, it’s highly suggested you compare APRs to find the best one for you.