When you are looking for a guarantor loan, you need to make sure that you give some thought to the guarantor loan APR. The APR stands for the annual percentage rate, and this is the annual percentage that you will be charged at when you borrow money in a loan. No matter what financial product you are considering, there is a legal requirement for the lender to provide you with the APR. This is to allow the borrower to compare different loan options and finance products.
The best way to think about the APR is to view it as the cost of borrowing money. When you have the option of a loan with a high APR and a loan with a low APR, you will end up paying more to borrow the loan with the high APR. This means that people should instinctively be looking at loans with a lower APR but of course, this is often easier said than done.
You need to know about APR
Every lender or borrower will calculate the APR in their own way but you find that there is uniformity amongst the vast majority of lenders. The cost of borrowing can also include additional fees and interest, so having access to the APR makes it much easier to evaluate between different options.
As a quick example, if you borrowed £1,000 with a guarantor loan and the APR was at 48%, the loan would cost you £480, if you never paid anything back within the year. Of course, as you are likely to have made payments over the course of the year, the amount of interest that is paid will be less than this.
APR is normally placed on top of the debt on a monthly basis and if you are looking to work out the monthly interest rate, dividing the APR by 12 is the way to go about it. With an APR of 48%, the monthly rate is 4% and if you owed the £1,000 you will receive a charge of £40 in interest every month.
The length of time that you take the loan out over will also have an impact on the amount of money that you pay back. If you spread the payments out over a longer period of time, it will lower the amount of money that you have to pay each month but it will increase the total level of interest you pay.