Definition Of

Annual Percentage Rate

Annual Percentage Rate is a rate of interest (such as on a hire-purchase agreement) shown on an annual compound basis, including fees
and charges. As hire purchase agreements quote a flat rate of interest covering the whole amount borrowed or a monthly repayment figure, the Consumer Credit Act, 1974, forces lenders to show the APR on documentation concerning hire purchase agreements, so as to give an accurate figure of the real rate of interest as opposed to the nominal rate. The APR includes various fees charged (such as the valuation of a house for mortgage); it may also vary
according to the sum borrowed – a credit card company will quote a lower APR if the borrower’s credit limit is low.

Category: Economics