Small loans can be sent today.

Instant quote with a soft search and no fees.

Over 7500^{+} no-obligation quotes processed daily!

What is APR and What Does It Mean?

APR stands for Annual Percentage Rate and is the total cost of borrowing for a year expressed as a percentage of how much you borrow. It is arguably the middle part of that definition that is the most important.

This is because it is the total cost meaning it includes both the interest to pay and any fees that you pay to obtain the loan. The interest rate is the cost of borrowing money whilst standard fees refer to fees that are automatically added such as the annual fee.

Luckily, though, with loans through Sunny, we don’t charge any automatic fees; hence, the APR is the interest rate.

APRs are a universal measure of the cost of borrowing, allowing you as the consumer to easily compare the cost of borrowing money. As licensed credit brokers are required to display the cost of loans in terms of APR, it not only means that loans are easily comparable, but it also helps to avoid situations where unscrupulous lenders would use different units to profit on individuals not knowing the difference.

APRs are required to be displayed by a lender before any agreement is signed. Beware any lender who i) does not display the APR or ii) uses a different unit as they are likely unlicensed.

APR returns the total cost of a loan for an entire year. Therefore, an APR of 20% is cheaper than an APR of 25%. The formula for APR considers the following:

• Total Interest

• Fees associated with the loan

• Loan amount borrowed

• Length of the loan term (in days)

If you were to borrow £1000 over 18 months, an APR of 13% means that your monthly repayments would be £61.11 with the total repayable (the original loan amount + interest + fees) at £1100.05. The total cost of borrowing the £1000 over the 18 months, then, is £100.05 which includes both the interest and any fees.

The APR essentially equals the interest rate plus fees associated with the loan. Consequently, an interest rate is a cost of borrowing excluding related fees whereas the APR is the total cost of the loan. The APR unit is ,therefore, designed to offer a much more accurate picture of what a loan will really cost.

For example, the interest rate for a loan may be 20% but fails to include a £20 loan application fee. This, therefore, isn’t representative of the true cost of the loan. The APR would account for this fee hence, whilst the interest rate may be 20%, the APR may be 27%.

Luckily, Sunnydon’t charge fees…ever! This means that, for all our loans, the APR is the interest rate.

Thankfully, thanks to greater regulation the use of flat interest rates for loans and credit providers has significantly reduced. However, they still can be found in finance arrangements and so it’s important to know the difference.

With flat rate interest, interest is paid annually on the original amount borrowed without accounting for repayments on the principal that you have already made. On the other hand, APRs only charge interest on the outstanding debt left after repayments, not on the original amount borrowed.

An example can help clarify the difference. If you borrow £2000 over 2 years at 5% flat rate interest, every year you pay £100 interest. After the first year you have paid off 50% of the principal, but you will still be charged 5% on the original £2000 borrowed, despite not still owing that amount. With an APR rate given the same example, you would only be charged interest on the remaining 50% of the principal i.e., £1000, rather than the full amount.

Therefore, whilst flat interest rates often appear cheaper in terms of a pure percentage, they can end up costing you a lot more.

Representative APR is so-called because it is the rate which is advertised to at least 51% of loan applicants. It is, therefore, a representative APR as it represents the APR that most applicants are offered. As lenders offer different interest rates depending on personal circumstances it allows you to quickly compare between lenders without necessarily needing to apply. Of course, the threshold being 51% means that it doesn’t consider the APR which potentially, the other 49% of loanees are offered.

Your Personal APR is the APR percentage applied to your specific application taking into consideration the amount, borrowing period, current personal circumstances and credit history. Whilst representative APRs reflectof the cost of a loan, they are not necessarily the APR you’ll be offered. For a personal APR, you need to apply for the loan itself, however, this can affect your credit history.

This is the benefit of Sunny. You can get a no-obligation, 100% secure quote using our soft search technology, which doesn’t affect your credit history. Whilst this doesn’t necessarily return your final personal APR, it does offer an accurate picture of what you can expect. Moreover, it is a Financial Conduct Authority requirement to perform a credit check to ensure a loan acceptance. This is to protect both lender and loanee alike.

At Sunny, we specialise in loans for people with bad credit. Our register of loaners recognises that past history is not always reflective of the future. Instead, we are more interested in your current financial situation and ability to pay than your previous performance. Check out our specialised loans for bad credit.

The APR formula means that you pay interest on the principal (the amount you borrowed) and the accruing interest. For example, a loan of £1000 at 20% APR over 1 year will cost you in interest £102.28. The same loan but instead paid over 2 years, will cost you £202.49. This is because of what’s known as compound interest – interest on interest.

To reduce the amount of interest you pay, therefore, reduce the time over which it is borrowed. However, reducing the time over which you borrow money, whilst reducing the cost of the loan in total, does increase the monthly payments of the loan, and if you miss these payments fees may be applied. Hence it is often advisable to err on the side of caution regarding repayment length and what you can afford each month.

At Sunny, we have a representative APR rate of 89%, meaning if you borrow £1,000 for 18 months you’ll repay £1853.43, with a total interest of £853.43. Of course, that’s just our representative APR, we offer rates between 9.3% and 1721% APR which all depend on your circumstances as well as how much you borrow. For a more accurate idea of what your APR would be, apply for a quote today.

One benefit of applying for loans through Sunny however, is that we allow for flexible repayments. This means you can pay back your loan earlier, reducing the total interest you need to pay back without facing any early repayment charges (ERCs).