Will someone please explain APR to me in layman's terms?

moneybunny123

Thankfully, I'm in a fortunate position where I've never needed a credit card or loan :j However, I'm now looking at getting a small loan to get a new family car.

The rate I've been quoted is 6%, but the APR is 15%.

What do these rates both mean? And why are there two rates?

If I'm borrowing £5000 over 4 years, how much interest am I paying.

Sorry for being thick, but like I said, I've never needed to borrow money before so I can't be THAT stupid!!

YorkshireBoy

moneybunny123 wrote: »

The rate I've been quoted is 6%, but the APR is 15%.

What do these rates both mean? And why are there two rates?

If I'm borrowing £5000 over 4 years, how much interest am I paying.

This may help...

http://www.moneysavingexpert.com/banking/interest-rates#FLAT

I've never needed to borrow money before so I can't be THAT stupid!!

Maybe not, but not all debt is bad debt!

Had you been running a credit card for 2-3 years, and settling in full each month when the bill came in, you would have had a much better credit rating than I assume you have now. This would have resulted in a much better APR, because 15.9% APR on a loan is very expensive indeed when compared to the 7.40% APR deals around at the moment.

Apples2

The only people who even talk about Flat Rates are the 'Arfur Daley second hand car dealers.
They try to mug you over by stating the flat rate hoping you are gullible enough to think it is the APR.

Tell him to stick his car where the sun don't shine as you have rumbled his crooked ways.

Then go to a bank, borrow some money and go and buy a car elsewhere.

iolanthe07

Apples is right. Car dealerships seem to be the only people allowed to quote flat rate, and I don't know why they are allowed to get away with it. As a rough guide you need to double the flat rate to get a realistic APR.

nomoneytoday

APR is the total annual cost of borrowing.
A flat rate applies throughout the term of the debt and is easier to calculate on a piece of paper

JSH_2

Apples2 wrote: »

The only people who even talk about Flat Rates are the 'Arfur Daley second hand car dealers.
They try to mug you over by stating the flat rate hoping you are gullible enough to think it is the APR.

Tell him to stick his car where the sun don't shine as you have rumbled his crooked ways.

Then go to a bank, borrow some money and go and buy a car elsewhere.

Not just dodgy dealers! Audi, BMW, VW - they all do it!