68% of credit card holders don’t know what an APR is

Sixty-eight per cent of credit card holders do not know what an Annual Percentage Rate (APR) is, research from KIS Finance has found.

The bridging loan and development finance broker noted that this is despite an APR being one of the “most important factors” when comparing unsecured financial products, such as credit cards and personal loans.

According to KIS Finance’s financial survey, only 31% of adults in the UK could correctly identify what an APR is, including its purpose and how it should be used.

KIS Finance research from November also revealed that 15.5% of people have had to take out an additional credit card, while 25.8% have had to go into an arranged or unarranged overdraft solely because of the COVID-19 pandemic. With overdraft charges now being based on an APR instead of an interest rate, KIS Finance said it is “very concerning” how many people don’t understand how they’re being charged.

“Financial education is clearly needed based on these recent findings and financial advisors must take steps to ensure applicants do have a clear understanding of the commitment they are entering into,” said KIS Finance managing director, Holly Andrews.

“We have long been an advocate of these, and other similar matters, being covered as part of the high school curriculum to ensure everyone has this knowledge when they leave school. From the age of 18, people will be offered unsecured borrowing and it’s essential that they understand all the key points of what they are taking on.”

KIS Finance also found that 60% of those between 55 and 64 couldn’t say what an APR is, and according to the survey, this was the age group with the largest percentage of people who currently have a credit card.

Andrews continued: “APRs are a very useful tool for comparing financial products on a like-for-like basis and will allow you to make more informed decisions. It can be tempting to simply go for the product with the lowest interest rate, but the APR will give you a better idea of what the loan will cost overall.

“Even if the interest rate is higher on one product, if the APR is lower, this will be the more cost effective option over the course of a year.

“The findings of this survey are worrying because the majority of people cannot be choosing the cheapest products, and those working in the finance industry use the term ‘APR’ freely assuming it’s well understood. I think all finance providers and advisers need to take ownership of this problem together to explain things in clearly and without any jargon.”

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