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

Looking for a secured loan or mortgage? You’ll need to know the meaning of APRC. Looking at the annual percentage rate of charge (APRC) is a way of comparing the cost of different loans over their full term to find the right one for you. We explain how the APRC rate is calculated, why it’s used and its limitations.

Looking for a secured loan or mortgage? You’ll need to know the meaning of APRC. Looking at the annual percentage rate of charge (APRC) is a way of comparing the cost of different loans over their full term to find the right one for you. We explain how the APRC rate is calculated, why it’s used and its limitations.

Written by
Alex Hasty
Insurance comparison and finance expert
Last Updated
10 AUGUST 2022
9 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. It brings together all charges (such as fees and variable interest rates) calculated for your secured loan or mortgage for the full term without changing it. It’s used to compare mortgages and homeowner loans – the types of loan that are secured against your house.

Because some mortgages and secured loans can offer a lower rate of interest for the first few years, the way the APRC is calculated reflects this. While APR includes just one rate, including fees, APRC is designed to help show potential borrowers the impact that the different rates and any charges could have over the lifetime of the mortgage.

APRC helps you compare the overall mortgage or secure loan costs from different providers against the same parameters. Some mortgages may have a low introductory interest rate, but by the time you add in all the charges and factor in higher variable rates, it could work out more expensive – APRC helps borrowers see that.

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 be moved onto the provider’s standard variable rate, which will likely be much higher. The APRC takes both the introductory and long-term interest rate, together with any fees, and calculates a percentage. This shows you what it would cost every year if you had the same mortgage until you paid it off completely.

You can compare the APRC on any mortgage, homeowner loan, secured loan, or second mortgage – basically any loan that is secured against your home.  

APRC is not applicable to an unsecured loan where you don’t need to offer any security. For unsecured loans you will be able to compare the APR instead. 

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

It has its limitations. The APRC is calculated to assume that you keep the same mortgage/secured loan and provider for the length of the loan and that interest rates don't change. In theory this can help you make a more informed decision about the long-term costs of borrowing, but in practice most people won't stay with the same provider for the entire term of their mortgage, and variable rates are just that, variable. 

People move home, and many borrowers compare deals when their fixed term comes to an end and remortgage or switch to a more competitive deal. If you’re going to be an active switcher, the initial rate and the set-up fees might be of more importance to you than a high APRC.

However, it can be a useful tool to allow you to see the impact of different interest rates or different fees on the overall cost between different providers.

Say you were looking for a three-year fixed rate mortgage. Any deals you see promoted or quotes you’re given should show:

  • The initial rate – the rate during the three-year fixed period.
  • The variable rate – the rate you’d move onto once the three-year deal finishes.
  • The APRC – the calculated overall cost, which takes account of both the initial and the variable rate over the full term of the mortgage.

Being able to see 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 on it. The interest charged depends on:

  • How much you want to borrow
  • How long you want to borrow the money for
  • Your individual circumstances, including your credit score.

So while the headline/representative APRC for a mortgage or loan might be 5%, for example, once the bank takes into account your personal situation and credit history your personal APRC might be 8%.

Author image Daniel Evans

What our expert says...

“The difference between the introductory rate, standard variable rate and the 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, and over the years, could end up paying thousands of pounds more because of the higher interest charges.

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

- Daniel Evans, Mortgages expert

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

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

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 gives you a clear indication of how much the average interest rate and associated fees would be on an annual basis if you kept the loan or mortgage for the whole term.

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

How to get a loan or mortgage with low APRC

Getting a loan with a low APRC is influenced by:

  • Your credit record – to get a loan or mortgage at the lowest APRC, you’ll need a very good credit history. You can check you 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 offered. However, you should only borrow what you can afford to pay back.

  • The length of time you borrow for – mortgages are generally 25 years, but you can find longer or shorter terms. If you’re taking out a mortgage or secured loan, extending the term will drive down your monthly repayments and mean you pay less over the course of the year. But while the monthly payments may be lower, the overall cost of the loan will be higher because you’re borrowing the money for longer and, as a result, 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’re applying for a mortgage - if you can put down a 40% deposit, you’ll get a lower interest rate than if you have just 5%.
  • The amount of available equity in your property if you’re applying for a secured loan. If you have a lot of available equity in your property, but the loan you’re applying for is a smaller amount, you’ll be less of a risk to your lender so are likely to get a better interest rate.

Frequently asked questions

How do mortgage providers set interest rates?

Loan and mortgage providers tend to set their own interest rates. As well as considering the Bank of England base rate, lenders look at other factors, such as how much competition there is in the market, 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 to make sure the terms of borrowing are 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 so that borrowers can better understand how much they will be paying over the lifetime of their mortgage. Lenders must use a set calculation to work out the APRC to make sure borrowers get an accurate and fair picture of how much they will have to pay back over time.

What is a representative APRC?

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

The APRC is representative because the actual interest rates offered to a borrower will be based on a person’s financial status and credit history. Your individual APRC could be lower or higher than the representative APRC depending on your financial situation.

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 will give you cheaper monthly repayments but will mean you pay more overall.
  • Overpayments
    Some mortgage providers will 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’re not going to be charged if you want to switch your mortgage or leave your existing or potential new mortgage 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 it clear what the APRC/APR is, what you need to pay each month and overall. Get a quote and find the right deal for you.

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