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apr vs aer

APR is the annual percentage rate this is used to show you how much interest you will pay on credit cards, loans and mortgages.

An APR is the total cost of accruing credit over one year. The APR is made up of the fees and costs associated with obtaining the credit, along with the interest rate that the borrower will be charged.

Unfortunately there is no standardised method of of calculating APR. So if two credit card companies advertise the rate of 14.9% APR, there is no guarantee that you will pay the same amount of interest on both.

If you are looking at credit cards and two cards have the same APR rate, it is worth looking at other criteria such as one having a longer interest-free period than the other credit card, or do they both charge balance transfer fees or ho do their penalty charges compare?

 

When it comes to Mortgages, APR rates do not really mean anything, as most mortgage rates are worked out over a 25 year period and APR is an annual rate. Another reason why APR is not useful in mortgages is because a lot of people go for short term deals and most people remortgage every few years.

AER

AER stands for the Annual Equivalent Rate, this is used to show how much interest you will earn on a savings or current account over a year if your interest is compounded year on year.

So if two accounts advertise the same gross rate but one pays interest monthly and the other annually the monthly deal will have a higher AER.

The AER is particularly useful when comparing deals with short-term bonuses. Many financial providers use bonuses to boost the headline rate, but after a period the bonus ends and the underlying interest rate is far less attractive, the AER rate factors this in.

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