The simplest way to compare loan offers is to take note of the APRs and compare them to see which one is lower. However, there is more to it than that.

We’ve all heard of APRs, the annual percentage rates of loans, credit cards and other forms of credit. It is a legal requirement in the UK for all credit providers to have APR details on all promotional and contractual material, and the APR includes the normal interest rate plus any extra charges such as setup fees and annual fees.

The first thing you need to know is that the ‘A’ in ‘APR’ is very important. Your interest is calculated on your outstanding balance at the end of each year, so if you’re paying back a loan over a longer period, your monthly payments will be smaller, but you’ll end up paying more in the long term because at the end of the year you’ll have taken a smaller slice of the cake, so there will be more left to pay interest on. For example: a £10,000 loan at 5% APR payable over 5 years will cost £188 per month but £1322 in total; over 10 years you’ll pay only £106 per month but £2727 over the whole term (plus the ten grand, of course!). So there are two types of cheapness – one you’ll notice every month and one that works on the longer term.

Lenders might also give you one rate when they are marketing your loan (a ‘typical APR’) and another when they’ve got your attention – or your credit history. If you’re considered high risk, don’t be surprised if the rate is different to the advertised rate or even if you’re refused outright and guided to another loan especially for people in your financial situation.

Charges that can be added to loans include payment protection deals, which become active should you become unable to work, and late payment charges. Since these are, respectively, optional and as a penalty, they need not be included in the APR. The two are related, however; if you lose your job you could become unable to pay and then incur charges. But beware of expensive payment protection agreements. You can end up paying hundreds over the term, which means it might be cheaper to pay a few late charges.

This short article should hopefully make you aware that APRs are just like the cost per night at a hotel: there are extras that you can rack up, even when you might assume they are included.

Leonard McAllister is an author for WiderChoice, a loan comparison site and offers more information on how to compare loans and other comparison tips on the site. Visit now: http://www.widerchoice.co.uk