Interest rates, APR, representative rates – when searching for the best personal loan deal for you, there are numerous terms that you must get to grips with. Here we dig into the financial jargon and explain all you need to know and understand about personal loan interest rates if you’re to find the best deal for your circumstances.
Personal Loan Interest Rates – The Basics
When you borrow money as a personal loan you’ll repay the lump sum amount that you were advanced, as well as interest charged on top as a percentage. Most personal loans adopt a fixed interest rate that remains the same throughout the life of the loan, however, there are financial products that offer variable interest rates, which fluctuate as the Bank of England base rate changes.
How does Annual Percentage Rates of Interest Work?
Annual Percentage Rates (APR) notes how much interest is charged on the principal lump sum over the course of a year. The APR noted on a loan takes into account not just the interest on the loan, but also the other charges that you’ll pay (such as an arrangement fee). For some consumers, this can be confusing, as a financial product may have an interest rate of 14% per annum and yet the APR may be 17%.
Broker pro tip: ALL financial providers are legally obliged to make their APR interest rates clear before you sign an agreement.
What Is Compound Interest?
In the simplest explanation, compound interest is when interest is charged on top of interest. Contrary to simple interest, compound interest is worked out on the principal balance (the lump sum that you’ve received) as well as any outstanding interest that has already accrued. If you have a loan with a simple interest rate of 6%, and another with a compound interest rate of 6%, the latter will work out to be more expensive.
Interest Rates versus Representative APR – What is Representative APR?
Personal loans advertise a set rate alongside their products and denote it as ‘representative APR’, which is a set percentage rate that at least 51% of applicants secure. This means that as many as 49% of all applicants won’t qualify for the advertised rate, and will likely receive a higher rate of interest.
*The calculator is for illustration purposes only and may not reflect the exact actual cost which depends on the lender.
Can A Credit Broker Help You Secure the Best Interest Rate?
In a word, yes – they present more choices, from multiple lenders, than if you simply approach a single lender. As a credit broker, CashLady connects borrowers to a pool of more than 12 lenders, presenting differing personal loan interest rates options, side by side.