How Annual Percentage Rates (APRs) are calculated

Lenders charge interest on the amount you borrow, which is referred to as the Annual Percentage Rate (APR).

The amount you can borrow, the term available and the APR depend on the equity you have in your property, the lender's view of your ability to repay the loan and your personal circumstances. The APRs quoted by the lender will usually be typical rates; these act as a guide only, as the exact rate offered will be on an individual basis.

Even though lenders are required by law to show a loan's APR, they don't all use the same fees in their calculation

As a general rule, it's advisable to compare the APRs of different loans, as this is a good way to determine how competitive they are because they take into account both the interest rate and closing fees. Unlike an interest rate, an APR gives you a bigger picture when shopping for the best deal on a loan.  For example, an APR lets you see the total cost of a mortgage, including any extra costs incurred – not just the interest due.

Even though lenders are required by law to show a loan's APR, they don't all use the same fees in their calculation, skewing the comparison. So always check to make sure that the APRs you’re comparing include similar fees.