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APR Explained

What does APR stand for?

APR stands for annual percentage rate. In simple terms, it’s the cost of borrowing money. APR is a calculation of the full amount you will pay for a loan over the course of a year. Knowing the APR will therefore allow you to see how much the interest on your loan will cost. By comparing APR rates, you are better equipped to choose an affordable loan. Use our loan calculator to work out your repayment on your next loan.


To start with, what exactly is APR and what does it mean with regard to short term loans? The APR percentage is a number advertised by lenders, enabling borrowers to easily compare similar financial products. APR represents the annual rate for borrowing or earned through investments and includes transaction fees


APR does not account for compounding interest. On a loan, APR can either be variable or fixed. Variable APR is unpredictable because it can vary from month to month, affecting your payment. UK Ethical Loans offers clients a fixed APR rate so you can understand and budget for your loan payments without unexpected curveballs.

How is APR calculated?

The APR is calculated using a number of factors, including the amount of your loan, the schedule of your loan payments and any extra late charges that may be added to the total loan repayment.

How does APR per month work?

APR is typically added to a debt owed on a monthly basis. If you’d like to calculate the monthly interest rate simply divide the APR by 12. So if the APR is 12% the monthly rate is 1% and if you owe £1000 you will be charged £10 interest each month.

How do I find out what my total APR is?

An APR can be calculated by multiplying a monthly percentage by 12. If a loan charges 12% a month, the APR will be 144%.

APR and Loan Repayments

In addition to publishing our APR, we make things clear for customers by providing a detailed breakdown of your repayment schedule. This includes the dates of repayment, amount borrowed, and interest repayment amounts, and duration between payments. In addition to the APR, we display this breakdown of repayments on both the pre-contract information sheet that we provide as well as the loan agreement and our funding confirmation email. The following equation is used to calculate the APR for each loan where the left hand side represents amount borrowed and the right represents repayments.

Why is the APR for UK Payday loans so high?

UK payday loans are unsecured. By nature, this means that the risk that the lender is taking on the borrower is high and often the risk of loan defaults in this landscape is high. Payday lenders therefore often offer higher interest rates to cover their potential risks.


From a lender’s point of view, the additional costs of providing a small loan are the same as those of providing a larger one. A smaller short-term lender still needs the same equipment and staff to process a loan as a larger bank does. However, a longer loan term means that a lender can actually recover more of their costs, but in a less visible way.

What is the average APR for a payday loan?

A typical payday loan in the United Kingdom can be 1000% APR or more with a daily interest rate of up to 8%. Should you require more information or a further explanation please contact us via phone or email.

Why is APR a bad measurement for payday loans?

For payday and short term loans, APR alone isn’t the single most reliable method of showing how desirable or affordable the loan will be for the customer. Payment size, additional fees and the term of the loan are also essential to calculating overall value and to obtain a full picture of the deal being offered. To become a super savvy payday expert, take these additional factors into serious consideration:

  • Equivalent APR
  • Loan term
  • Payments
  • Additional fees
  • Credit reporting (affects on your credit score)

Numbers 1,2 and 4 are essential for determining the financial costs. Numbers 3 and 4 are important for determining the cost of repayment. Number 5 – the affects that the loan may have on your credit score is also an important factor

Policy of UK Ethical Loans

This website is intended for property professionals and introducers only. NZB Property Specialists Limited Company number 10408447 (T/A UK Ethical Loans) is pending authorisation/regulated by the Financial Conduct Authority (FCA). ico registration number Ico ZA217671. Registered Office – 7 Victoria Road Nottingham NG42LA

Borrow £1000 for 6 months monthly repayment of £208.33. Total repayment £1250. Interest rate p.a. 50%. RAPR 61.65% Our APR includes all applicable fees. Amount of interest on original amount borrowed £250. Daily interest is capped at 0.74%. Free early repayment always possible.

**Warning: Late repayment can cause you serious money problem.

For help, go to
www.moneyadviceservice.org.uk.
https://www.adviceuk.org.uk

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