The APR is perhaps more valuable for loans or mortgages that will last for a number of years, as this represents what the charges would be each year. As short-term loans are designed for a much short period, the APR looks much higher but actually would look very different if you calculated it for just a half year or for a few months.
In the UK, new rules and regulations for payday loans means that the interest and charges should be no more than 0.8% of the overall loan each day. So if you took out a payday loan of £100 for one month, you would expect to pay 0.8% per day (80p per day). Over the course of the month, the loan should then cost you no more than £24 in fees and charges. The monthly rate here would be 24%, compared to the 1,000% that is shown for annual rates. Of course, if you took out a £100 loan for a year, at 0.8% per day, paying back only the interest until the final month, this would be a total charge of £292, on top of the £100 you had to repay.
- APR stands for Annual Percentage Rate, and is the amount of interest you would pay if you borrowed a sum of money from a lender for a full year
- 'Representative' simply indicates that the majority of customers had this APR with their loan
- It is require by law when offering certain financial products
- It may be considered more relevant for much longer-term loans, however, it does give customers an indication of how much interest they would pay if they took out a loan for a year.