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What does APRC mean and why does it matter when borrowing?

Looking for a secured loan or mortgage? Then you’ll want to know about APRC. Checking the annual percentage rate of charge (APRC) helps you compare the cost of loans over their full term, making it easier to find one.

Here we explain how the APRC rate is calculated, why it’s used and its limitations.

Looking for a secured loan or mortgage? Then you’ll want to know about APRC. Checking the annual percentage rate of charge (APRC) helps you compare the cost of loans over their full term, making it easier to find one.

Here we explain how the APRC rate is calculated, why it’s used and its limitations.

Written by
Sajni Shah
Consumer expert on money and utilities
Last Updated
5 min read
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What is APRC?

APRC stands for annual percentage rate of charge. It shows you, as a percentage, the annual cost of a secured loan or mortgage over its lifetime.

APRC brings together all charges for your secured loan or mortgage, such as fees and variable interest rates, over the full term. You can use it to compare mortgages and homeowner loans – the types of loan secured against your house.

While APR includes just one rate, APRC is designed to show borrowers the effect different rates and charges will have over the mortgage lifetime.

APRC helps you compare overall loan costs from different providers. Some mortgages might have low introductory interest rates, but they could work out more expensive once you factor in the charges and higher variable rates. APRC helps make this clearer.

How is APRC calculated?

When you take out a mortgage, you’ll probably be offered an attractive introductory rate. This will only last for a set period, after which you’ll move onto the provider’s standard variable rate, which is likely to be much higher.

The APRC takes both the introductory and long-term interest rate, plus fees, and calculates a percentage. This shows you how much the mortgage will cost every year until you pay it off.

You can compare the APRC on any mortgage, homeowner loan, secured loan or second mortgage. Essentially, it’s for any loan secured against your home. APRC doesn’t apply to an unsecured loan where you don’t need to offer any security. For unsecured loans you can compare the APR instead.

How useful is the APRC for comparing the cost of mortgages and secured loans?

APRC has its limitations. It assumes you keep the same mortgage/secured loan and provider throughout and that interest rates remain stable.

In theory, this could help you make an informed decision about long-term borrowing costs, but in practice most people won’t stay with the same provider for the entire mortgage term. And if you have a variable rate mortgage, your interest rate will change. 

People move house, and many borrowers compare deals when their fixed term ends and they remortgage. If you’re going to be an active switcher, the initial rate and set-up fees may be more relevant than the APRC.

But APRC can help you see how different interest rates or fees will affect the overall cost of a mortgage

Say you were looking for a three-year, fixed-rate deal. Any quotes you receive should show:

  • The initial rate – the rate during the three-year fixed period
  • The variable rate – the rate you’ll move onto once the three-year deal ends
  • The APRC – the overall cost, taking into account the initial and variable rate over the full mortgage term.

Having sight of all three rates can help you compare mortgages.

Loans, interest and APRC: how they work together

If you take out a secured loan or a mortgage, you’ll need to pay interest. Your interest rate depends on:

  • How much you want to borrow
  • How long you want to borrow the money
  • Your personal circumstances, including your credit score.
Author image Alex Hasty

What our expert says...

“The difference between the introductory rate, standard variable rate and APRC should act as a reminder that if you don’t remortgage at the end of an introductory term you’ll roll onto a lender’s standard variable rate. Over the years, higher interest charges mean you could end up paying thousands of pounds more.

So, it’s worth finding out if you’re eligible for a new fixed-rate deal with your current loan provider or another lender before your fixed term ends. If you need help finding the right deal, speak to a mortgage broker.”

- Alex Hasty, Insurance comparison and finance expert

What’s the difference between APRC, APR and AER?

APR (annual percentage rate) is a way of comparing loans or credit that works in a similar way to APRC. It includes both the annual interest rate and borrowing fees.

With mortgages and other secured loans, there are often two interest rates to consider: the introductory rate and the variable rate you’ll move onto at the end of your fixed-rate deal.

APRC tells you how much the average interest rate and associated fees will cost you each year if you keep the loan or mortgage for the whole term.

AER (annual equivalent rate) is used to compare savings accounts. AER works by assuming you’re going to put your savings away for a year. It takes into account compound interest, plus any bonus introductory rates.

How to get a loan or mortgage with low APRC

Getting a loan with low APRC will depend on:

  • Your credit record – to get a loan or mortgage at the lowest APRC, you’ll need a good credit history. You can check your credit score with the main credit reference agencies:
    • Experian
    • Equifax
    • TransUnion.
  • How much you want to borrow – generally, the more you borrow, the lower the rate. But only borrow what you can afford to pay back.
  • How long you borrow for – mortgages are generally 25 years, but you can find longer or shorter terms. Extending the term will lower your monthly repayments, but the cost of the loan will be higher as you’re paying back more interest.
    Remember the golden rule: borrow as little as possible and pay it back as quickly as possible.
  • The size of your deposit – if you can put down a 40% deposit, you’ll get a lower interest rate than if you have 5%.
  • How much equity you have – if you have a lot of equity in your property, your lender will consider you less of a risk. That means you’re likely to get a better interest rate.

Frequently asked questions

How do mortgage providers set interest rates?

Loan and mortgage providers set their own interest rates.

Along with the Bank of England base rate, lenders consider other factors, such as market competition, how much the loan is likely to cost them and what kind of risk the borrower presents.

Why was the ARPC introduced?

APRC was designed to create a competitive market for mortgages and make borrowing terms clear to customers. It was introduced by the Financial Conduct Authority (FCA), based on a Mortgage Credit Directive (MCD) from the EU.

Do lenders need to show the APRC of a loan or mortgage?

Yes, any lender, mortgage broker or comparison site advertising a mortgage or secured loan must show the APRC. This helps borrowers understand how much they’ll pay over their mortgage lifespan.

Lenders must use a standardised calculation for the APRC. This ensures borrowers receive an accurate depiction of their long-term repayments.

What is a representative APRC?

The representative – or headline – APRC is the interest most customers (51% of borrowers) can expect to pay over the lifetime of the loan. It takes into account fees, the initial rate and the variable rate they’ll move on to at the end of their deal.

The APRC is representative because the actual interest rates a borrower receives will be based on their financial status and credit history. Depending on your financial situation, your APRC could be lower or higher than the representative APRC.

What else should I consider when applying for a mortgage or secure loan?

Factors to think about apart from APRC include:

  • Mortgage or loan length
    A longer term gives you cheaper monthly repayments but means you’ll pay more overall.
  • Overpayments
    Some mortgage providers penalise you for overpaying on your mortgage. If you’re likely to want to overpay, look for a deal that gives you that flexibility.
  • Penalties
    Read the small print and make sure you won’t be charged if you want to switch your mortgage or leave early.
  • Flexibility
    For example, can you move your mortgage if you move house?

Finding the right loan for you

We’re here to make things as straightforward as possible. When it comes to comparing loans, we’ll make the APRC/APR clear, along with how much you’ll pay each month – and overall. Get a quote and find the right deal for you.

The content written in this article is for information purposes only and should not be taken as financial advice. If you require support on the products discussed here, please speak to your bank/lender or seek the advice of an independent professional financial advisor. We also have more information on our Customer Support Hub.

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Sajni Shah - Consumer expert on utilities and money

Sajni is passionate about building products, allowing Compare the Market to help you make great financial decisions. She keeps track of the latest trends and evolving markets to find new ways to help you save money.

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