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Zopa's Jargon Buster

Posted on 01 Jul 2009 by Jenny

Each week, we’ll be getting to the bottom of the real meaning of financial terms bandied about when you’re looking for a loan. It’s everything you ever needed to know but were too afraid to ask…and this week, we’re looking at APR.

APR APR is short for Annual Percentage Rate and was introduced under the Consumer Credit Act 1974 to make loan deals directly comparable. An APR is the yearly cost of a loan (or mortgage or credit card etc), expressed as a percentage. This figure takes into account not only the interest payable over the term of the loan, but also any upfront fees and charges. However, it would not take into account any early repayment fees that you might incur, and these do apply to the vast majority of unsecured loans (but not, of course, here at Zopa!).

Everyone is always searching for the lowest APR rate they can get because of course they’re cheapest in the long run, and indeed Zopa lenders have ensured that we’ve often been table-topping on the comparison websites. However, for all the attention APR rates get, seemingly large increases in APR can make very little difference on the relatively small sums of money involved in a personal loan. For example, a hike of 1.0% in the APR on a £5000 loan over 36 months, increases the monthly repayment by just £2.14 - less than a pint and a packet of salt & vinegar!

Therefore it’s always worth checking the early repayment fees on a loan as well as the APR, because if you do wish to pay it off early, it’s important to ensure that your cheap loan is as flexible as you need it to be. Of course, Zopa doesn’t charge any sneaky penalties or admin fees for any kind of overpayment or full early settlement on a loan, so not only is a Zopa loan one of the cheapest available, it’s also one of the fairest and most flexible. Good eh?

Next week, AER

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