Representative APR

Meaning and Definition

Representative APR (Annual Percentage Rate) is a standard measure used to indicate the overall cost of borrowing, including both the interest rate and any additional fees or charges associated with a financial product, such as a car finance agreement. It is expressed as an annualized percentage and provides borrowers with a way to compare the costs of different loan offers from various lenders.

Why it is important to know

Representative APR is important for borrowers as it helps them understand the total cost of borrowing and make informed decisions when comparing loan options. It provides a standardized way to assess and compare the affordability of different loan offers. The representative APR takes into account the interest rate, fees, and other charges associated with the loan, allowing borrowers to have a clearer understanding of the overall cost they can expect to pay.

Example in car finance

Let's say a car finance lender advertises a representative APR of 7%. This means that the lender has calculated the overall cost of borrowing, including interest and fees, and expressed it as an annualized percentage. The representative APR provides potential borrowers with an indication of the total cost they can expect when financing a car with that lender. However, it's important to note that the representative APR is a representative figure and may not be the actual APR offered to every borrower. The actual APR offered will depend on individual circumstances and creditworthiness.