Annual Percentage Rate (APR)
Information
In Ireland, the Annual Percentage Rate (APR) is the interest rate that reflects the real cost of borrowing to the consumer. It is defined as "being the total cost of credit to the consumer expressed as an annual percentage of the amount of credit granted". APR values are commonly used to compare loan programmes from different lenders in the market. You will probably have seen APR values on advertisements from lenders, where the APR value is expressed beside the rate for the loan. This means that consumers can shop around so they can ensure they select the best option.
The APR is calculated each year on the declining principal (amount outstanding) of a loan.
Rules
The law in Ireland states that any advertisement about the availability of credit must include the APR. It is the only interest rate that should appear in the advertisement and must be in a clear and prominent place. These requirements are set down in Section 21 of the Consumer Credit Act, 1995.
Rates
In general, the lower the rate of APR on a loan is, the lower the cost of credit to the consumer will be. Interest rates are effectively set by the European Central Bank and can change daily.
Example:
If a financial institution quotes an interest rate of 4% per year compounded every 6 months. We call this 4% the 'Nominal Rate'. This means that the financial institution pays 2% compound interest every 6 months. The interest paid at the end of 6 months, actually earns interest for the second 6 months of the year. For this reason, 4% compounded every 6 months, is not the same as 4% compounded annually.
You invest €500 with your financial institution at a rate of 4% each year, compounded every 6 months.
| Time Period | Interest | Accumulated Value |
| After 6 months | €10 | €510 |
| After 12 months | €10.20 | €520.20 |
The 410 interest for the first 6 months is simply €2% of 500. This is then added to the initial investment to give a running total of €510. The interest for the second 6 months of the year €10.20 is 2% of €510. The effective annual interest rate is therefore 20.20 /500 x 100 = 4.04%.
How to apply
Ask at your credit institution about APR before you enter into any credit agreement.
If you have a complaint against a financial institution regarding APR, contact the Financial Services Ombudsman Bureau. If you feel that an advertisement in Ireland was misleading, you can make a complaint to the Advertising Standards Authority of Ireland.
Where to apply
For more information on APR
National Consumer Agency
4 Harcourt Road
Dublin 2
Ireland
Opening Hours:- Lines open Monday - Friday 9am - 6pm
Tel:(01) 402 5555
Locall:1890 432 432
Fax:(01) 402 5501
Homepage: http://www.nca.ie/
Financial Services Ombudsman's Bureau
3rd Floor
Lincoln House
Lincoln Place
Dublin 2
Ireland
Tel:(01) 662 0899
Locall:1890 882 090
Fax:(01) 662 0890
Homepage: http://www.financialombudsman.ie/
Email: enquiries@financialombudsman.ie
Language
Related Documents
- Comparing interest on savings and loans
If you borrow money from a financial institution you will be charged interest. If you save money in a financial institution you will earn interest. Find out about the different terms used for interest charged or earned. - Borrowing money in Ireland
Consumers in Ireland who borrow money are protected by legislation. Advice on getting the right loan for your needs and how to shop around for a loan. - Credit advertising in Ireland
This document describes the rules governing the advertising of credit to consumers in Ireland.
Contact Us
If you have a question relating to this topic you can contact the Citizens Information Phone Service on 0761 07 4000 (Monday to Friday, 9am to 9pm) or you can visit your local Citizens Information Centre.