Limiting beliefs: APR is the best indicator of value.

OK, let’s start with the answer here.

APRs are useful for one thing and one thing only, and that is to compare and fine tune very similar facilities.

So, if for example you have 2 offers of loans over a 3 year period the APR is a pretty reliable guide of which is better value. Additionally you might be in a position to choose between offers on different terms – eg. A loan with guarantees at one rate or without them at a higher rate – the APR is a useful indicator of the price differential (though there is an easier way to calculate this).

On the other hand, APR is a poor and potentially very misleading gauge of fundamentally different products. It is openly acknowledged by the regulators that a PayDay loan at ￡1,000% can represent better value than an overdraft at 16% - there are too many variables to compare on a single figure.

 If you want to know what is cheaper, a pretty reliable way to do it is to sit down and work it out in pounds and pennies – always making sure that you are informed of all variables and associated costs. After all, in 30 years I’ve never had a customer who paid me in APRs, they all seem to prefer Sterling!

If you want to know which is best value it’s a little more complex – as with any product or service it starts with laying out your specific needs and circumstances – if you need money for 2 years, a loan at 10% APR is likely to work out cheaper than a mortgage at 4%. The most expensive facility will always be the one that is bought (or sold) on erroneous or misleading information.

Conclusion: Once you have clearly established what facility is appropriate and accessible for you, by all means fine tune on APR; but please don’t use it to compare fundamentally different facilities – it will be a mistake.

Fit Out Finance can offer free and open input onto many potential funding options for premise fit outs.

Call me on 07932 075 754, or email me.