Explained: Interest, Interest Rates and APR

Have you ever watched TV adverts and hear them talk extremely fast at the end about interest rates and APR rates and wonder what it actually means? Don't worry you're not alone.

That financial mumbo-jumbo at the end of adverts about loans or finance is confusing for most people. The first thing is understanding a common mistake that you can make; mixing up what interest is and APR is or thinking that they're the same thing. Let me explain... Okay

so what is interest? Now whenever we take out a loan whether it be from a bank a building society or a short term lender via Loanski, you're borrowing money that isn't yours so you will get charged for doing so.

This is interest. This is added on together with the amount you borrowed which is included in your loan repayment.

When you repay your loan you're also repaying the interest. Straight forward right? So what is the interest rate? Now this is the amount of interest you pay share as a percentage against what is borrowed. Anyone with a mortgage will often receive lower interest rates as they are judged to be at lower risk to the lender. The amount borrowed is secured against a property and is repaid back over a long period of time such as 25 years.

If you borrowed two hundred thousand pounds over 25 years at an interest rate of three percent your repayments would be nine hundred and forty eight pounds a month.

That's the six hundred and sixty seven pounds borrowed plus the three percent interest which in this scenario is 281 pounds. Still with me? Good!

Now it gets a little trickier. That phrase representative APR. APR stands for annual percentage rate of charge. It was designed to give customers a way of being able to compare similar loans and decide which loan option is best for them. APR of the loan is the cost of interest plus any of the fees which are added to your loan.

This could include things like admin fees, insurance costs and late payment penalties.

Don't be worried though when you apply through Loanski Loans all their lenders must provide details of the agreement before you confirm. Just make sure you check the amount requested, the total amount repayable and the monthly payment amounts.

When you accept those, if you maintain your agreed repayments your total amount of paper will never change.

That's the benefit in applying with a fully authorized broker such as Loanski. Loanski takes away the uncertainty of knowing which lenders can help with what type of loan you're looking for.

If you're looking for a loan and not sure if your credit history will be a problem, make an application and we'll look for you. Apply today at www.loanski.co.uk