The annual percentage rate or APR is a magically derived number that can be used to compare the cost of credit between lenders. Annual percentage rates were introduced by the Consumer Credit Act 1974 to force lenders to include all elements of purchasing credit that are incurred in the first year, such as arrangement fees.
Although calculating the annual percentage rate is straightforward for a personal loan or for a mortgage, it is a nightmare for credit card borrowing. The use of a credit card varies so much that assumptions are made on how much of the credit card debt is outstanding is repaid each month, and when in the month the payment is actually made. Each credit card company makes its own assumptions on usage; there is no standard or prescribed model. Because of this, annual percentage rates quoted by credit card companies should therefore be used as a rough guide, as your own experience may produce a different cost of credit, either much lower or higher, depending on many factors.
Always try to choose the lender quoting the lowest annual percentage rate to keep the cost of credit as low as possible.
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