Summary

The term APR is commonly used in financial advertising but what does [ life insurance ] APR and its lesser-used cousins AER and EAR mean? AR. This article sheds some light.

APR, AER and EAR are terms used in financial advertising.
What do they mean?

(mortgage deals)

The Financial Services Authority lays down the exact formulas for calculating APR, [ medical insurance ] AER and EARs. Every UK financial institution then has to stick by the formulas and the FSA lays down rules as to when and how the figures have to be disclosed. There are no exclusions! Errors invariably result in big fines for the offending company and compensation for any borrower or saver affected. But its still no good if the public simply dont understand what the terms mean. (loan quotations)

So heres our bit to lift the mists of misunderstanding!

APR is most commonly seen. It stands for "annual percentage rate" and ( Car insurance ) is used to express the true cost of the money borrowed on credit cards, loans and mortgages. The APR calculation takes account of the basic interest rate, when it is charged (i.e. annually, monthly, weekly or daily), all initial fees and any other costs you are obliged to pay. As lenders all ( insurance ) calculate APR the same way, it enables you to make direct cost comparisons between competing lending products.

So if one bank is offering you a mortgage at 4.75% plus an arrangement fee of £450 and a building society is offering you an interest rate of 5.1% with a £100 fee, then the APR figures will show you which of the two mortgages is the cheaper. (life insurance)

There are then two further expressions ( bad credit loans ) youll see that include the term APR. X% APR variable means that the borrowing cost is currently X% but the rate of interest is not fixed and is likely to vary (up or down).

The second is X% APR Typical variable. Youll regularly see this expression in loan promotions. It means that the lender cannot be specific about the interest rate youd be charged as their rates vary, usually in response to your personal credit history and the amount of money you want to borrow. Therefore X% APR Typical variable, is used to provide a general impression of the interest rate you can expect to be offered. The addition of the word "Typical" means life assurance that at least two thirds of applications that the advertiser approves are at that APR or cheaper . Then if a loan is offered to you, the paperwork will reveal the actual APR or APR variable you are being offered. (life insurance advisers)

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