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Money & Advice Know your loan jargon

Loans jargon - do you understand the cost of your borrowing?

When you are looking at taking out a loan - it is important you understand exactly what the cost of that loan is including interest and any arrangement fees. Loans are advertised as having APR - here's an explaination of exactly what this means:

APR = Annual Percentage Rate
When the APR is calculated it has to include the cost of borrowing (i.e.the total amount of interest) and any fees that are automatically charged with that loan.

This is the definition of APR from the Financial Conduct Authority
"APR stands for the Annual Percentage Rate of charge. You can use it to compare different credit and loan offers. The APR takes into account not just the interest on the loan but also other charges you have to pay, for example, any arrangement fee. All lenders have to tell you what their APR is before you sign an agreement. It will vary from lender to lender."

APR allows you to make a true comparison between loans because it accounts for the impact of the charges. So a loan with 10% interest per annum but 15% APR shows that the charges add an equivalent of 5% interest to the loan.

How APR is shown for credit cards.

With credit cards, you often see the APR expressed as a monthly figure. this makes it look much more appealing. However, when you consider a 2% monthly APR is the equivalent of 27% annual APR - this is quite some interest you are being charged.

Not getting the advertised APR on a loan?
When an advert says 'representative APR' is used, this means 51% of the successful applicants applying for these loans will be given this rate - the rest will mostly be at a higher rate that could be as much as 49%.

ESCU don't use representative APRs. We have an interest rate that is the same across the board for all applicants applying to borrow within our pricing brackets. We do not charge arrangement fees.

What is Compound Interest?

Compound interest is where you are paying interest on the original amount you borrowed, plus interest on the interest accrued. As time passes and the longer you borrow for, the quicker your debts grow.
To illustrate the effect of compound interest - if you borrowed £1,000 at 15% interest over 20 years and made no repayments at all, you'd owe £16,400 (without compound interest, it would be £4000).

Do you want to apply for a loan?
If you are thinking of applying for a loan with us, please go to our loans calculator to see how much your loan will cost you. The APR is clearly shown so you can compare costs with other lenders.

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