Loan help

nd2sve

Hi could anyone help with understanding APR/interest on loans. My agreement says the APR is 19% but then it also says rate of interest on the amount of credit is 8.85% per annum - I dont understand what this is? The amount of credit borrowed was £5358 over 5 years and the total amount payable is £8693.28. I got the loan out in July 2011 and I am thinking of getting a bank loan at a lower APR to pay this and my outstanding credit card debts. Any advice would be much appreciated.

Apples2

Was this for a car?

Car dealers peddle Flat Rate of interest when they spout their flanneling nonsense. Flat Rate is approx half the APR so they make you think your APR is very low.

Your APR is 19%, the dealer just made you think you were getting 8.85%.

opinions4u

APR is usually more or less double the flat rate. It's calculated against a reducing debt where as the flat rate is calculated against sum borrowed.

In this case I suspect there are also highish fees in addition to interest, probably at the start or end of the agreement.

Several hundred pounds?

nd2sve

Thanks for the replies. Yes it was for a car, to be honest I rushed into it, i'd never got a car on finance before and should have looked into it more first.

nardocott

Well you are definitely being charge 19% APR which is pretty high for a loan. I've read before about car places selling flat rate loans. You should always go by the APR but I have heard cases of car salesmen telling people the flat rate is the APR which is a completely lie.

The difference:
Flat rate is paid on the original amount throughout the loan. In your case you would be paying 8% of 5300 each year even though you have paid some of the balance back.

The APR is paid on the remaining amount so you pay more interest and less capital at the beginning of the loan and the opposite at the end.

Before you take out a loan to pay it off make sure you read your original loan's terms and conditions carefully. There may be a charge for settling the loan early (in which case a regular loan might not save you as much) or they may charge you the total (including the interest) if you want to pay it off (in which case a regular loan would cost you more).

If you aren't sure then ask around once you have read the T's & C's.