Annualised Percentage Rate of Interest APR

The annualised percentage rate of interest – APR – represents the annual cost of taking out a loan. There is not a simple correlation between a monthly rate and the annual rate. For example, for a loan with no repayments, if the monthly rate is 1%, the APR will not be 12%, but about 13.5%.

This is because the interest is compounded and you end up paying interest on the interest accrued to the loan. Banks and building societies are legally obliged to tell customers of their APR as monthly rates can be misleading.

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