APR is the rate at which you borrow, it includes charges and fees so you can compare it with all products regardless of the varying fees or charges. ⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀
Issues with APR✔
The fact it includes charges means sometimes the APR can be a bit confusing. It is possible the interest rate is 18% per annum, but the APR is 23%, as the impact of the charges adds the equivalent to another 5% interest. Yet this is useful as it allows a true comparison between all credit products. ⭐⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀
The APR is meant to indicate the amount you will pay each year over the full term of the debt. Yet when rates change this can make it more rather than less complicated. ⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀
Mortgages are the best example as consumers move from lower variable rates to fixed rates and the APR simply represents the average rate over the term. ⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀
Representative APR is the advertised rate. This is the rate 51% of people who applied were offered but it doesn't mean you will get the same rate. ⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀
Lenders have also been known to include the cost of voluntary products in the product package but as these are not compulsory products their costs are not included in the APR. This means a 6% APR might actually be 9% if you don't spot the voluntary products.
AER, or annual equivalent rate, is the amount of interest you will earn on your savings and deposits over the course of a year if you left the money untouched..(hence compounding)
The representative AER will allow you to compare different savings products.
The alternative to AER is the gross or flat rate which shows you how much you will get on a fixed amount of money.
Watch out for fixed rate loans🙌 when taking on new credit as this loans simply charge you a fixed rate for a fixed credit amount which does not change even when you make monthly repayments.😱