Rate of Interest (per annum) & APR the same?

Jo4

A friend of mine has recently taken out a loan for £6100. On the documentation which he received it states the APR is 10.8% while it states the Rate of Interest (per annum) is 5% (fixed). Is his APR 10.8% or is it 5%, what is the difference in the 2 terms? The interest charges are £1220, acceptance fee is £100 and option to purchase fee (including VAT) is £25. The total he will repay is £7445. The loan is for 4 years.

Do you think this is a good rate or should he consider looking else where?

Rafter

Annual interest is a dodgy way of expressing interest used by car dealers quite a bit to make their loans look cheap compared to 'high street' or 'internet' loan offers.

Because you are paying off your loan over time, the average amount you are borrowing is a lot less than £6,100 over four years, it is more like half that number.

The APR is calculated based on this reducing amount outstanding.

The Annual interest calculation charges you 5% of the original amount for each year of the loan, so even in year 4 when your loan is substantially paid off, you are still paying 5% of the original loan value.

10.8% is not a great rate, but it depends on your friends credit rating and other details. The decision to switch will also depend on any penalties from repaying his existing loan early.

R.