What Is APRC? (And How Does It Compare to APR?)

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Scouring the market for a mortgage is a trying effort made even more difficult by terms you don’t understand. When looking for a mortgage, you probably came across the term APRC and wondered about its meaning. This article addresses what an APRC is, why and when it’s used, and how to calculate it.

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APRC Meaning

An Annual Percentage Rate of Charge (APRC) presents the percentage of the total annual cost of a mortgage or secured loan and considers all the charges included in the loan.

The primary purpose of an APRC is to compare mortgages and secured loans. When offering such loans, lenders are required to state the APRC so that prospective customers can compare the various costs across different loans they’re being offered.

What Is APRC & What Does It Include?

Contrary to popular belief, an APRC is not a standard interest rate. Instead, the APRC shows the total interest amount you need to pay throughout the loan period and the fluctuating interest rates. In addition, some lenders offer a lower interest rate for the first few years, which the APRC also considers.

In addition to the variable interest rate, an APRC considers all other expenses you’re required to pay—broker fees and additional costs that vary from lender to lender.

The APRC definition affirms that the shown APRC number is valid for the lifespan of the loan. If you opt for remortgaging after the introductory period expires to avoid paying the standard variable rate, the APRC ceases to be valid. In essence, the APRC is the total amount you would owe if you never changed the terms of the deal. But since most people do, the APRC is not the most important number you need to look at in the long run.

DID YOU KNOW? The history of APRC vs APR demonstrates that the APR has been around a lot longer than the APRC. The formula for calculating an APR was outlined in the Consumer Credit Act of 1974, and, ever since, lenders have been required to state the APR on all loans.

How Do APRCs Work?

An APRC is just one of the three numbers you’re shown when applying for a mortgage or a homeowner loan. The other two numbers are the initial interest rate and the variable rate that follows after the initial rate period expires.

Even though you’re given these two numbers, the mortgage APRC includes the interest rate and fees, shown alongside the other numbers. The APRC tells you exactly how much you need to pay each year until you pay off the entire loan—assuming that you keep it for the whole term. So if you’re applying for a £100,000 loan, for example, with a 5% APRC, you’re obliged to pay £5,000 in interest each year for the loan duration.

What Does APRC Mean for Me?

When looking through loans and various APRCs, it’s essential to remember the golden rule of APRC: the lower, the better. You may be tricked into thinking that a low interest rate is all that matters, but this is far from true.

When considering different loans and mortgage lenders, the APRC is your ally. Not only does it tell you how much money you’ll actually pay in interest and expenses, but it’s also the simplest way to compare and find the cheapest loans.

DID YOU KNOW? The APRC hasn’t always been around. The Financial Conduct Authority introduced it in 2016, and, ever since, lenders have been required to display this rate to potential customers.

Key Takeaways

APRC stands for Annual Percentage Rate of Charge. It shows the total cost of a loan
The APRC considers the initial interest rates, the variable rates, and additional fees.
APRCs are found on mortgages and other secured loans, unlike APRs, used for unsecured loans.
An APRC is valid for the whole duration of the loan. But if you remortgage, it’s no longer valid.

What Is APRC in Mortgage?

In the past, mortgage lenders advertised their loans with only the initial interest rate. As a result, many had no idea what they were getting into when applying for a mortgage and, therefore, accumulated vast amounts of household debt.

Fortunately, lenders are no longer permitted to do this. Instead, they’re now mandated to display the total cost of each loan they offer. The APRC allows people to know the actual cost of borrowing and protects them from taking on more debt than they can manage.

What Is an APRC Mortgage Example?

When applying for a mortgage, you should remember that most mortgages have a lifespan of 20 to 30 years. So the APRC will be a yearly expense during this period. Even if you take out a five-year fixed-rate mortgage, the APRC will account for the higher rates you’re obliged to pay after this period expires. And if you’re planning to switch to another plan or change lenders, the APRC will be of no value. The APRC is no longer applicable when you decide to switch plans.

What Is a Good APRC for a Mortgage in the UK?

Mortgages in the UK are experiencing historically low rates, with a base rate of only 2.6% for a 10-year fixed-rate mortgage. Add in all the other costs, and the APRC is significantly higher than the interest rate. So, in general, an APRC under 5% is considered a good bargain.

DID YOU KNOW? When offered a mortgage, know that your credit score does not influence the APRC. If you’re not eligible for a mortgage, the lender will not offer you another loan with a higher APRC—unlike offers for unsecured loans with high APRs to those with low credit scores.

How to Calculate APRC

When you take the big financial step of applying for a mortgage, you need to know each charge. You may even want to calculate your own APRC or understand how lenders calculate it.

Suppose you want to be approved for a mortgage of £120,000, and you’re contemplating the two following offers.

1. Offer A: £120,000

  • Two-year fixed-rate: 0.99%
  • Standard variable rate: 4.99% over 23 years
  • Fees: £2,36

2. Offer B: £120,000

  • Two-year fixed-rate: 1.39%
  • Standard variable rate: 4.75% over 23 years
  • No fees

The APRC mortgage meaning may not be evident at first, but when we factor in all the available information, it turns out that Offer A has a higher APRC of 4.5% than Offer B at 4.2%. Even though the initial rate for Offer A is lower than that of Offer B, the lower variable rate is what makes Offer B a better choice in terms of APRC.

If you ever need to calculate the APRC and have all the aforementioned information, you should have no trouble making your own calculations and determining the exact APRC of a mortgage.

DID YOU KNOW? Regardless of the APRC, you need to make regular monthly payments towards your mortgage. Otherwise, you may be issued a county court judgement (CCJ) and be required to pay the total amount.

APR vs APRC

The world of finance is filled with jargon and acronyms, often unrecognisable and confusing. One common perplexity includes distinguishing between APR and APRC.

In essence, these two terms refer to the same thing—percentage numbers that account for all types of interest rates and fees. APRCs are used with mortgages and secured loans, while APRs include rates for unsecured loans (personal loans, credit cards).

The other main distinction between the APRC meaning and an APR one is that an APRC calculates the changing rates throughout the loan period, and an APR provides a prediction for the annual rate based on current rates. Therefore, if applying for a credit card, make sure it doesn’t have a high APR, which can accumulate credit card debt.

DID YOU KNOW? Lenders typically offer the young population of the UK only unsecured high APR loans, primarily because their credit scores have been negatively affected by the amount of student debt.

Conclusion

The Annual Percentage Rate Charge (APRC) is the most important number to consider when applying for a mortgage. It contains all the necessary information about the overall cost of your loan. So it’s essential to know what it is and what it entails. Hopefully, this article has managed to help you understand APRCs to compare the most attractive mortgage offers that best fit your needs.

FAQ

What is the difference between APRC and interest rate?

An APRC considers the interest rate, the variable rate, and proprietary loan costs. So if you’re only looking at the interest rates, you won’t get the full scope of all your expenses.

What is the purpose of APRC?

The APRC meaning serves to inform customers of the actual cost of borrowing, including inflation caused by variable rates and hidden expenses. It’s also the best way to compare various loans.

How is APRC calculated?

APRCs are calculated by considering initial interest rates, the variable rates, and the accompanying fees that pop up in the process of taking out a loan.

ABOUT AUTHOR

I learned a lot about finance after working for a digital marketing company specializing in investing and trading stocks, forex, etc. After that, I got exposed to other verticals such as wealth management and personal finance, which further improved my understanding of the financial world.

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