New way of advertising loan rates proposed
Published On 21 September 2007
New research from the Council of Mortgage Lenders (CML) has instigated new ways of presenting information about the cost of things like homeowner loans and mortgages.The CML report suggested that lenders should use a new measure - the Dynamic Annual Rate (DAR) - rather than the traditional Annual Percentage Rate (APR) to advertise homeowner and other loan rates.
According to the publication, the DAR differs from the APR in two key respects: namely that it is calculated for any period of time for which the loan may be kept; and that takes into account all payments and charges over the period for which the borrowing is held.
In contrast, the APR is calculated on the assumption that loans will be held until maturity. At the moment, many people pay back mortgages and homeowner loans early - meaning that the rate is inaccurate.
"The Dynamic Annual Rate provides a useful basis for discussion on the ways mortgage lenders can make consumer information as comprehensive, accessible and meaningful as possible," explained Michael Coogan, CML director general.
"As the research points out, it is not fair to describe the APR as the 'wrong' way of calculating the cost of loans. In fact, it is a statutory requirement for lenders to use it.
"The DAR itself does not provide all the answers, but it is a useful measure for consumers who are uncertain about how long they will hold their mortgages, and the intermediaries who advise them."
Data released by the British Bankers' Association (BBA) recently indicated that net mortgage lending rose in August.
