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APRC Rates – What Are They?

By Kev TilleyCeMAP

Last Reviewed: 3rd November 2021

APRC is the annual percentage rate of charge. It’s the interest rate associated with secured loans and mortgages. Different secured loans often come with different rates, and it can be challenging trying to determine which loan offers the best value and is suitable for your specific needs.

In 2016, the Financial Conduct Authority (FCA) introduced the APRC to give you a more realistic view of how secured loans and mortgages will cost over the long term.

Here’s everything you need to know about APRC rates.

How Do APRC Rates Work?

APRC rates are expressed as a percentage, and they bring together all the charges of the loan, including fees and other costs. The APRC is calculated as if you’ll keep the secured loan or mortgages for the full term without any changes.

The APRC rate will help you compare secured loans so you can understand how much any deal you’re considering will cost you. This ensures you make an informed decision among secured loan options and choose the best and most suitable deal available.

You can find secured loans that offer lower interest rates, known as an introductory rate, for the first few years before the rates revert to the lender’s standard variable rate. The APRC considers this and shows you the impact the different rates, together with any other charges, will have over the full term of the secured loan or mortgage.

Uses Of APRC Rates

The APRC rate gives you a glance at which lender provides the best deal after considering all the costs. The lower the APRC rate, the cheaper the loan.

Marketers will often try to persuade you to choose a specific loan option with attractive offers like low starting or introductory interest rates. However, once you consider all the factors, you may find that a once appealing offer is quite expensive compared to other lenders.

For example, once the introductory period ends, the lender may introduce high variable interest rates. The APRC helps you see that and ensures misleading offers with attractive starting rates do not sway you. With the APRC, you can compare secured loan costs from different providers using the same parameters.

Related quick help guides: 

Calculating The APRC

The APRC considers the initial or introductory interest rate and the long-term interest rate together with any other charges and calculates a percentage. The percentage tells you how much it would cost you every year if you stayed on the same deal until the loan is fully repaid.

The APRC rate combines factors specific to you, including the loan term, loan amount, credit history, and house value. Such factors are assessed at the initial application stage when checking your affordability and total loan cost.

Consider an example of a borrower who wants to buy a house worth £150,00o. With a £20,000 deposit, the APRC can help you compare two possible secured loans for £130,000.

  • The first option offers an introductory rate of 2.99% for 24 months. It then increases to a standard rate of 4.94% for 18 years with arrangement fees of £250.
  • The second option has a starting interest rate of 3.26% for 24 months. It then increases to a standard rate of 4.34% for 18 years with arrangement fees of £1,400.

At face value, the first option is very tempting. You may think it’s a no-brainer because it has a lower initial rate and fewer fees. Here’s where the APRC comes in handy. The first option would cost £218,026, while the second option would cost £205,829 when considering all interest rates and fees.

The APRC for the first option would be 4.6%, while the APRC for the second option would be 4.2%. Therefore, the second option would save you £12,000, making it the better and cheaper option over the loan’s lifetime.

Suitability Of APRC Rates

The suitability of APRC rates when comparing secured loan options will vary. When calculating the APRC, it’s assumed that you’ll keep the same secured loan or mortgage plus the lender for the loan duration. This can limit the suitability of the APRC rates.

You may want to move from your current home or compare other deals when your fixed term ends and switch to another lender with a more competitive deal.

It’s important to consider such factors before looking at different APRC rates, including how long you plan to stay on the property or life events that are likely to happen and impact your living situation.

If you don’t plan to stay with the same provider or will be actively switching, the initial rate will be more important than a high APRC. Since you plan to pay off the mortgage or secured loan early and get a new one when you move or switch, the initial rate will apply for a larger proportion of the loan than is shown in the APRC, which assumes you’ll be in the deal for the full term.

How Does Representative APRC Work?

The representative or headline APRC is the rate advertised with the assumption that all other factors are constant. Most people approved for the secured loan or mortgage product will pay this rate or lower. The interest you’ll be charged when you take out a secured loan or mortgage will depend on:

  • The amount you’re borrowing.
  • The period or term of the loan.
  • Your circumstances, including your affordability and credit score.

Therefore, you may find a representative APRC advertised as 5%, but once the lender considers your unique circumstances and credit history, the actual APRC goes up to 9%. It’s vital to ensure you double-check the actual APRC once a lender approves your loan request.

APRC Vs. APR

The APRC can easily be confused with the APR because of the similar names and meanings. APR refers to the annual percentage rate and functions like the APRC. It can help you compare the total cost of loan products by showing a percentage of the interest cost you’ll pay on loans per year.

While the APR only shows the loan cost per year, the APRC shows the total cost of the loan once you repay it in full for the entire term.

APRC Final Thoughts

Think of the APRC as a tool that helps you compare secured loans and mortgages to find the best deal available. The lower the APRC, the cheaper the loan in the full term. The APRC assumes you’ll stick with the deal to the end. Always consider any possible changes that can affect your situation soon when using APRC rates to compare secured loan options

Give us a call on 01925 906 210 and we will provide you with the best deals available to meet your circumstances and consider any credit history you may have. With our expert advice, we can guide you through the process and give you the knowledge and confidence it takes to acquire a secured loan that is right for you.

If you have read all the information on secured loans carefully and feel that you want to proceed with a secure loan, get in touch with one of our secured loan experts who can work with you to find the best deal for your needs and circumstances.

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