What does Annual Percentage Rate of Charge (APRC) mean?

What is an APRC?

An APRC – annual percentage rate of charge – is a calculation that shows you the total cost of a mortgage or unsecured loan over its entire term. 

For instance, if you had a 25-year mortgage, the APRC would tell you how much interest you’d pay over that period. 

It is shown as a percentage and allows you to compare the costs of two different financial products directly. It also includes some of the fees and charges you might pay, such as set-up or arrangement costs and any broker fees.

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Do lenders need to show the APRC?

Yes. Any mortgage provider or lender offering unsecured loans must show you the APRC. They all have to work out the figure the same way, using a standard calculation, which means that different products are directly comparable.

How is APRC calculated?

Most mortgages (and some secured loans) come with two interest rates. The first is an introductory offer, and the second is the standard variable rate (SVR), which you are moved onto when the offer period ends. The SVR is typically much higher than the rate you pay at the beginning.

For instance, you might be offered a three-year, fixed-term mortgage with a rate of 4.2%. At the end of the three years, the SVR you are switched onto could be 6% for the rest of your 25-year loan. Another provider might offer you a three-year fix at 4.9%, but with an SVR of 5.75%. The APRC will tell you which of those products works out cheaper overall over the 25 years. It will also include any broker or set-up fees in the calculation.

How useful is the APRC for comparing mortgages and loans?

Lots of people choose to switch mortgage deals once their introductory offer expires. This is smart because Standard Variable Rates tend to be the most expensive rates you can pay on a mortgage. If you are switching, then the APRC is not as useful since you’ll only ever pay the introductory rate. In these cases, the most important figure to look at is the annual percentage rate (or introductory rate), followed by fees and charges.

However, remember that circumstances can change –  for instance, a job loss or divorce could mean that you’re no longer able to remortgage and transfer to a new deal as you originally planned. So, even if you’re planning to switch, it’s worth checking what the SVR will be and what the total APRC is.

What is the difference between APRC and APR?

The annual percentage rate (APR) calculates the total cost of borrowing for a year. It is often used for unsecured loans and credit cards. The APR usually includes fees and charges, but it doesn’t include future rate changes.

By contrast, the APRC includes the standard variable rate, even though that doesn’t usually kick in for several years. It’s used for mortgages and other loans that are secured against your home.

Does everyone get the APRC that is advertised?

Not everyone gets the headline (or representative) APRC. By law, lenders must offer this rate to at least 51% of customers, but the remaining 49% can end up being offered a more expensive rate. Ultimately, the rate you’ll be offered is dependent on your personal financial situation, including how much you want to borrow, your loan-to-value ratio (LTV) and your credit rating.

People with big deposits, lower LTVs and excellent credit ratings tend to get the best deals.

How can I get the best rate on my mortgage or loan?

If you want to get the best rate on a secured loan or mortgage, you should make sure your credit rating is in the best shape possible. Providers use your credit score and history to decide whether to lend you money and what interest rate to offer you. 

You can boost your score by doing simple things, such as making sure you’re on the electoral roll and checking that there are no errors on your file. You can also take more long-term steps, such as using a credit builder card or making sure you’re using the right percentage of your available credit.

Another key factor is your loan-to-value ratio. This is a calculation of how big your loan is, versus the size of your house deposit. The lower your LTV, the better the rate you’ll be offered. Generally, the very best rates tend to go to people who can put down a deposit of 40% or more.

What else do I need to think about when getting a loan or mortgage

There are several key things to think about when choosing a mortgage or loan provider.

The key ones are:

Affordability - Never borrow more than you can afford to repay. Think about what might happen if interest rates rose significantly. Consider insurance solutions that can step in if you get made redundant or are too sick to work.

Overpayment and early repayment charges - If you think you’re likely to want to overpay the mortgage and clear your debt early, check the terms and conditions before you choose a provider. Most will let you overpay a certain amount (10% is standard) without incurring fees but will charge you if you pay more. Some will allow unlimited payments, while others charge if you want to switch your mortgage. Make sure the product you choose meets your needs.

Loan length - Longer mortgages mean cheaper monthly payments, but you’ll pay more in interest overall. Generally, you should go for the shortest term you can comfortably afford.

Rates - You want to pay as little interest as possible, but make sure you factor in any set-up fees or charges.

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