The number in a UK loan advertisement is a representative APR, and the word doing the work is “representative”.

Under the rules governing consumer-credit promotions, a representative APR is the rate at or below which the firm reasonably expects credit to be provided in at least 51% of the agreements resulting from that advertisement. Just over half. The remaining applicants who are accepted may be offered a higher rate, and there is no ceiling stated in the advertisement on what that higher rate might be.

Why the reading goes wrong

Because the number is presented as a price, and consumers read prices as prices.

Everything about the presentation encourages it: a single figure, prominently placed, next to a monthly payment. Nothing on the advertisement conveys that this is a rate slightly more than half of successful applicants will receive, and that the rest — plus everyone declined — are having a different conversation.

What the figure is still good for

It is not useless, and we would not want to imply otherwise.

A representative APR is a genuine signal about a lender’s pricing and about who it lends to. A firm advertising a low representative rate is telling you it expects to lend at that rate to most of the people it accepts, which says something real about its target customer. Comparing representative rates between lenders is comparing something meaningful — just not the rate you personally will get.

It is also standardised. Representative APR must include interest and compulsory charges, which makes it far better than a bare interest rate, and it is calculated on a common basis across lenders.

The number that actually matters

The total amount payable on your own agreement, at the rate you are actually offered. That figure is on the pre-contract information and the agreement, and it is the only one that describes your loan.

If the offered rate differs from the advertised one — which for close to half of accepted applicants it will — the advertisement has done its job and told you nothing about your position.

Our standing note

Loan Herald is a publisher. We are not a lender, not a credit broker, and not authorised or regulated by the Financial Conduct Authority. Nothing here is financial advice or a recommendation to borrow. Check any firm on the FCA Register before you apply.