What Does Representative APR Mean?

Published: 6 April 2011 By MoneyHighStreet Staff Leave a Comment

New consumer credit legislation has tightened up many terms used by finance companies. One of them is Representative APR, but what does it actually mean?

Representative APRWe are all used to seeing typical APR being applied to interest rates for loans, mortgages and credit cards, however you might have noticed that there is a new term on the block – Representative APR.

As from the 1st February 2011, any advertisement that displays an interest rate must also include a representative example which clearly illustrates how the interest rate is applied.

Standard information such as a credit limit of £1,200 is used and the advertised interest rate is also taken into account, plus any applicable fees, to calculate the Representative APR.

Importantly, the Representative APR must reflect at least 51% of business expected to result from the advertisement. The standard information must also be representative of agreements to which the Representative APR applies.

The Representative APR must also include the cost of any additional compulsory products or services so for example if a mortgage requires the borrower to take out a life insurance policy, the costs of this policy must also be included in the advertised Representative APR.

Lenders are also under obligation to display the Representative APR very prominently in their adverts so that you can easily make a comparison of the “real world” costs of credit between different products and lenders.

This legislation has been driven by similar European laws which now apply in the UK.

Designed to provide greater transparency into the true cost of various forms of credit, at MoneyHighStreet we applaud this attempt to help consumers make better informed financial choices.

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