How Can I Work Out APR On a Personal Loan?

Last Updated on: 22nd November 2023, 03:20 pm

If you don’t know a great deal about personal loans, then understanding APR rates can be quite the challenge. After all, how is APR worked out, and why is it important? What’s a decent APR on a personal loan? You’re certainly not alone if you find yourself asking one or more of these questions. The good news for you is that this article explains everything you need to know about APR and how it’s calculated, ensuring you know what to expect when you’re looking for credit or a personal loan.

What is APR?

Annual Percentage Rate – APR – refers to the interest rate of your loan for an entire calendar year, as opposed to what you’re required to pay monthly. Regardless of the way that you borrow money, be it a credit card, overdraft, or personal loan, you will always be subject to interest payments. In addition, you might also have to pay things like origination or annual account fees.

Helpfully, APR presents you – the borrower – with a precise picture of the total cost you will end up paying on your loan each year, which is represented as a percentage and considers all fees. For example, if you borrowed £2,000 in one year with a fixed interest rate of 10% and no fees, you will have paid pack £200 by the end of the year. Simple enough, surely?

Another example will make things slightly more complex. Assuming you borrowed the same amount of money over the course of twelve months (£2000) and were able to secure a lower interest rate of just 8%, your annual repayment would be just £160. But if the lender decided to add fees to the value of £60 on top of the £160, you would end up having to pay £220 back in a year, equating to 11%! Therefore, even though you’ve secured a lower interest rate, you would end up paying more money back in the second example.

Although it’s important to realise that fees and interest rates are typically more complex in practice than the examples given here, they at least represent why APRs are useful when comparing value between lenders. Essentially, APRs are provided to make it easy for you to understand the yearly costs associated with repaying your loan, enabling you to then look at other potential lenders. As such, APRs are one of the most important figures you have when you’re looking for the perfect loan.

What about representative APR? 

There isn’t a huge difference between standard APR and representative APR. That being said, a representative APR is one that has been calculated by lenders that grant credit cards and unsecured loans. Specifically, it’s a figure that approximately 51% of people applying for loans are most likely to be given. And while you might be one of the 49% of people given a different number, representative APRs provide you with an accurate estimation of the annual loan rate prior to submitting an application.

How do you calculate a loan’s APR? 

You’re probably wondering how Koyo Loans calculates APRs? Well, given that we’re an open banking lender, we utilise Open Banking data to decide upon the specific rate set for you. Your credit score is still taken into account, but the Open Banking process ensures that the APR set for you is fairer and more consistent with your actual finances. Within two days, we’re likely to inform you of our decision regarding your application without any hidden fees. 27.9% APR Representative.

But before you begin, our personal loan calculator is an excellent place to begin your research and will provide you with a realistic idea of what representative APR figure you can expect. You can enter the precise amount you wish to receive, with amounts between the range of £1,500 and £12,000.

After selecting the numbers that you want, the representative APR will be presented alongside the monthly repayment and total amount payable. 27.9% APR Representative.

How do I get a good APR for my personal loan? 

The fact that some personal loan rates are calculated in regards to your personal finances, you have an element of control over the APR rate you receive. With this in mind, here are some of the best ways to look for the best APR rates for your personal loan.

Select the best lender for your needs 

APRs exist to enable you to compare and analyse the value of loans provided by different lenders. Conducting your own research into a range of offers will help you find the ideal loan for your current financial situation. Don’t forget, however, that rates might change after the application process is complete, so representative figures should only be used as a guide. It’s a good idea to use an eligibility calculator to ensure you’re on the right lines before applying for a loan.

Work on your credit score 

An excellent way of improving your prospects of receiving a better APR rate is to work on your credit score. To do this, make sure your repayments go out on time and make sure that you haven’t maxed out all of your credit cards. You might even consider applying for a credit card builder. Improving your credit rating is a sure-fire way of receiving a better APR.

If you’re looking for a personal loan between £1,500 and £12,000 that is flexible and fair, then Koyo Loans may just have the ideal solution for you. Be sure to check out our loan calculator today to work out your representative rate before submitting an application. 27.9% APR Representative.

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