Interest Rates

Understanding Interest Rates, APRs, and Repayments

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The world of finance and loans is full of jargon and it’s no wonder that, to many people, it can be very confusing. Here at 786 Loans, we want every borrower to feel in control so, in this article, we’re going to be looking at the meanings of four of the most important terms in borrowing:

• the interest rate
• the APR
• the representative APR
• repayments

Plus, we’ll consider:

• the protection you get as a borrower on payday loans and short-term loans
• how to use 786 Loans to find a payday loan or a short-term loan with the fixed interest rate.

Interest rate

An interest rate is something that you either pay a finance company as their charge for taking a loan from them or the reward you get from a bank or building a society for saving money with them.

Interest rates are measured in percentages. So, if you borrow £1,000 and the interest rate is 10%, you pay 10% of £1,000 to a lender for their services. In total, you end up paying back £1,100.

On payday loans and short-term loans, the interest rate you pay is fixed meaning that your lender can’t make you pay more by upping their interest rate while you’re still paying your loan back.


The Annual Percentage Rate (APR) is a way of measuring the cost of taking out a loan or other type of finance (like a credit card or a mortgage). APRs measure not just the interest rate but any other fees you have to pay as well – think of an annual fee on your credit card or an arrangement fee on your mortgage.

The way of calculating APR is laid down by law – lenders have to follow the same method of working out what an APR on one of their products is. The reason that it’s the law is that it allows any borrower to compare what one company is offering to another fairly and accurately.

Representative APR

The representative APR is the big percentage number you see on websites, on TV adverts, and in newspaper adverts whenever a lender is advertising one of their products.

The representative APR is what a particular lender offers at least 51 out of 100 of their clients. If you have a good credit rating, you may pay a lower interest rate. If you have a bad credit rating, you may not be accepted for a loan or you may be offered one at a much higher interest rate.


Whenever you take out a loan, you come to an agreement with a lender on the dates you pay the lender back their money. With a payday loan, there is only one repayment – you agree a day with the lender (within 30 days) and they collect the amount you’ve borrowed plus the interest you owe on top on that day.

If you’ve agreed to take out a loan over a longer period, you pay back the loan and the interest in much smaller instalments over time on agreed dates. Once you’ve made the final repayment, the loan is “settled” and your loan account is closed.

If you take out a loan over a longer period of time, the amount you pay back each month is smaller although, in nearly all cases, you’ll pay more interest back to your lender over the term of the loan.

Protections for a payday loan and short-term loan customers

As a Financial Conduct Authority-licenced broker, the terms we’ve described are important for you to know so you can make the most informed decision.

What’s also really important is to know what protections you have if you take out a payday loan or a short-term loan. They’re the most heavily regulated personal loans in the UK and you benefit from the following protections:

  • Interest rate – you can never be charged more than 0.8% interest per day (that’s equivalent to 8p for every £10 you take out).
  • APR – the maximum APR you can be charged on a payday loan or short-term loan is 1,500%. However, you will never have to pay back in interest and fees more than the amount of the loan you took out.
  • Representative APR – all payday loan and short-term loan lenders and brokers must display their representative APRs on their website. Remember, that’s the rate that most customers pay although you may pay either more or less.
  • Repayments – before you take a loan out, your lender (or broker) must display how much your monthly repayments are, how much you pay in interest on your loan, and what default fees (caped at 15%) you have to pay if you miss a repayment date.

Payday loans and short-term loans are expensive and they should only be taken out to cover unexpected emergency bills. You should not use them in your general household budget planning.

The cheapest loans with the most competitive interest rates – let 786  Loans find them for you

786 Loans is an experienced broker and not a lender. Our job is to match you with the right lender – a lender who wants to work with you and who is happy with your current financial situation. That’s our job and you can tell by our really high success rate that we’re good at it. And we want to help you.

By using 786 Loans as your broker, what we do is talk with all the most suitable lenders on your behalf. As soon as we get your application, we’ll send that and your credit report off to the Financial Conduct Authority-approved lenders on our panel for a decision.

For the ones who say yes, we’ll sift through their offers and present you with the very best loan we’ve found. We’re here to help you get access to the money you need to cover an emergency situation and your loan should never cost you more than it has to.

You can apply for a loan using our application form – click here to go straight there. Our service is free and you’re under no obligation whatsoever to accept the offer we find you. It’s also good to know that you have the peace of mind knowing that your loan will cost you exactly the same getting it through us than if you’d applied directly to the lender themselves.