APRC

What it means

The APRC expresses the total cost of credit as a yearly percentage: interest plus arrangement fees, account charges, insurance tied to the loan and other mandatory costs.

That is why two loans at the same nominal rate can differ by several percentage points. Compare the APRC, not whichever number the advertisement prints largest.

The duty to state the APRC applies mainly to consumer credit. For a business loan the bank need not state it, so a company often works out a comparable figure itself: from the rate, all fees and the drawdown and repayment schedule, using the same method for every offer.

How it works in practice

On corporate lending the structure matters too: the commitment fee on a revolving facility, early repayment terms and covenants tied to ratios.

With leasing, compare the total paid including the down payment and residual value. That is where offers diverge most and where cash flow feels it.

When a client compares two offers to finance a car or a machine, we calculate the full cash flows of both options month by month and derive an effective annual cost from them. We also point out how long the fixed rate lasts: an offer with a lower figure and a short fixed period can turn out dearer once it ends.

What to watch out for

Insurance offered "with the loan" is usually a condition of the rate and belongs in the calculation. Leave it out and the comparison favours an offer that is not actually cheaper.

The APRC assumes the loan is drawn and repaid exactly on the contractual schedule to the end. If the company plans to repay early, the real cost differs from the APRC, sometimes markedly, because an early repayment fee does not show in it. So the scenario the company actually expects is compared too, including a possible refinancing.