Loans & APR advice

kmas78

Hi,

I have never taken out a loan before and am trying to calculate what I can afford. I am unsure how APR works, if the loan is 10.9% APR does this mean that 10.9% of the full loan amount is added to the account yearly or is it 10.9% of the outstanding amount? Or is it neither?
Sorry for being silly, I just don't want to get myself into a bigger mess.

Thanks

mrcow

To work out loan affordability, try this calculator.

10.9% apr is quite high. How much are you looking to borrow? (Or was that just an example?)

And beware of PPI!

grumbler

kmas78 wrote:

...I am unsure how APR works, if the loan is 10.9% APR does this mean that 10.9% of the full loan amount is added to the account yearly or is it 10.9% of the outstanding amount? Or is it neither?

In fact interest is calculated monthly. About 10.9%/12 of the current balance is added every month. However, all calculations are made at the start of the loan to work out the fixed montly payment. This payment in fact consists of two parts:

• interest payment (getting lower every month along with the balance)
• loan repayment (getting bigger every month)