What’s interest?
Interest is the cost of borrowing money and is included in your monthly repayments.
The lower the interest rate, the lower the overall cost of borrowing.
Typically, applicants with good credit scores could be offered more desirable rates of interest.
How is the interest on a loan decided?
The interest rate you’re offered will depend on several factors, including:
- The lender you apply with.
- How much money you apply to borrow.
- Your credit score and history.
- Your current financial circumstances.
What does APR stand for?
APR stands for Annual Percentage Rate, and it’s a term you’ll see when looking for a credit product, such as a loan. In this article, we’ll be talking about Representative APR and personal APR, and the difference between the two terms.
What’s Representative APR?
The Representative APR, which is sometimes referred to as Rep APR, is the rate that at least 51% of approved applicants will receive. It’s called ‘representative’ as you may be offered this rate, a lower rate, or a higher one.
The actual APR you’re offered will be based on your circumstances.
What is the personal APR on a loan?
Your personal APR is the rate you are officially offered if your application is approved. Like we said, this may be the same, higher, or lower than the Representative APR you saw before applying.
The personal APR reflects the annual cost of borrowing and is shown as a percentage.
Here’s a closer look at how it works:
Interest + any standard fees associated with the loan = APR
APR does not include any other fees that may be charged during the duration of the loan, such as late or early repayment fees.
APR example
- You take out a £500 loan with a repayment term of 12 months.
- You’re offered an APR of 79.5%.
- The total amount of money that you will have to repay is £677. This means that you’ll be charged £177 in interest.
- You’ll repay £56 per month.
We used this loan calculator.
What’s the difference between interest and APR?
You will be charged interest on the money you borrow. The interest rate shows you how much you will be charged. The interest rate doesn’t include any extra costs, such as any standard fees, if applicable.
The APR combines interest with any standard fees.
Why is the APR higher than the interest?
You might notice that the APR of a loan is higher than the rate of interest. This is because interest is the basic cost of borrowing, while the APR includes interest and any fees.
Ready to search for a loan? CashLady could help
CashLady is a credit broker, and we work with over 30 UK-based direct lenders.
With CashLady, you can search for a short-term, personal loan from £100 to £10,000. Depending on the amount of money you apply to borrow, you could repay your loan over a term of between 3 and 60 months.
When you use our credit broking service, we’ll scan our panel of lenders for a suitable loan for you, based on your financial circumstances.
All credit scores are welcome to check their eligibility, as several of the lenders on the CashLady panel specialise in loans for people with bad credit.
Before you search for a loan with CashLady, you must make sure that you match our eligibility criteria.
You’ll need to:
- Be over the age of 18;
- Be a UK resident;
- Have a UK bank account and a valid debit card; and
- Have a regular source of income paid into your bank account.
Searching for a loan with CashLady will not change your credit score.*
Loan jargon recap
| Term | Meaning |
|---|---|
| Interest | Interest is the fee for borrowing money and will be included in your monthly repayments. |
| Annual Percentage Rate (APR) | The annual cost of borrowing, including interest and any standard fees. Does not include added fees, such as late repayment charges. |
| Representative APR | 51% of successful applicants will receive this rate or lower. |
| Term | The loan term is the amount of time you choose to borrow the money for; for example, six months. |
| Direct lender | A direct lender lends you the loan.
They will check your eligibility for their product(s) only. Will complete a creditworthiness assessment, which will include a hard search or an Open Banking check. A hard search will be visible on your credit file for up to 12 months, and multiple hard searches in a short period of time will harm your credit score. |
| Credit broker | A credit broker does not lend money, but it can help you find a direct lender by scanning a panel of different companies all at the same time.* |
Concerned about money?
If you’re struggling with your finances, you can get free, impartial advice through any of the following organisations: StepChange, MoneyHelper, Citizens Advice, and National Debtline.
*CashLady uses soft search technology with no impact on your credit score. However, if you’re matched with a loan and choose to make a full application with the lender, they will carry out a creditworthiness assessment. This will involve a hard search or an Open Banking check. A hard search will affect your credit score.