How Representative APR Works

The Representative APR or annual percentage rate is the concept used by many financial institutions to represent the cost of a loan. For example, if a guarantor loan advertises the Representative APR to be 50%, it means that 51% of successful applications are computed at the said rate while the rest may get a different rate which may be lower but usually higher.

For guarantor loans, the average Representative APR is 50%. Say you want to borrow £5,000 over 24 months at a fixed per annum interest rate of 41.16 and the Representative APR is variable at 49.9%. Based on the given information, your repayment monthly fee will be £309 or roughly £7417 in total.

APR, however, is not as simple as going for the lowest available percentage in the market. APR is further categorized into fixed and variable. Fixed APR means that the interest rate is fixed throughout the duration of the loan while variable will vary from month to month. If it’s variable, the rate is usually higher than what was advertised by your lender.

So if you’re for a cheaper guarantor loan deal, don’t simply rely on the number. The basic recommendation is to go for the lowest APR rate out there but aside from what was advertised, you need to exert effort to find out whether the APR is variable or fixed. Obviously, fixed is better than variable.