How is annual percentage rate calculated?
The Annual Percentage Rate (APR) enables you to compare the costs of different loans. Mandatory use of the APR was introduced in the UK in the Consumer Credit Act of 1974, which said that the APR must be the most prominent rate or charge published in marketing or other material for all regulated loans APR is given as a percentage. This is the annual cost you will pay for your loan in percentage terms. As well as the percentage rate, the lender must also give you details such as how long the period of repayments will last for, and often you will have to make payments. In practice it may be more complicated because certain costs may or may not be included in the APR. This is ironic given that the APR was specifically meant to simplify the loans business by making charges transparent.
