Spreading the cost of treatments – What does APR mean?

If you have a credit card, have taken out a loan or have spread the cost of a purchase with monthly payments, you will have seen the term APR. Most of us have an idea it is related to interest payments, but do you know exactly what it means and how it works? Read on to find out everything you need to know about APR and, more specifically, how it is applied when you offer payment options to your patients.

APR means Annual Percentage Rate

The letters APR stand for Annual Percentage Rate. In its broadest terms it is the cost of borrowing. When you borrow money, the lender usually charges interest and possibly fees. The APR expresses this charge as a percentage of your borrowing over a year.

For example, if you borrowed £2400 at an APR of 20% and paid it back in 12 equal monthly payments, your total repayment would be £2880. This is the £2400 you borrowed plus £480 which is 20% of the borrowed amount.

What’s included in the APR figure?

To arrive at a comparable figure across different lenders, APR includes the following elements:

The interest rate charged, known as the ‘purchase rate’
Any additional fees, such as set up charges
Any annual fees

This is important because it takes into account all the known costs associated with the borrowing, and not just the interest rate itself. The APR effectively levels the playing field, allowing you to directly compare lending costs.

The APR represents all compulsory charges and assumes the debt is paid back as agreed. For credit cards in particularly it’s worth remembering it doesn’t include late payment charges, penalties for going over your credit limit, cash withdrawal interest rates or any discretional costs such as payment protection insurance. Perks and benefits, e.g. loyalty bonuses, are also excluded.

The cost of borrowing for loans can vary depending on the amount borrowed and the credit history of the borrower. To make sure the APR advertised by a lender is truly representative of what a typical borrower would be offered, it must be offered to at least 51% of their borrowers.

How is APR calculated?

Putting together all the compulsory costs, the APR represents the full cost of borrowing over one year, assuming that the borrowed amount will be paid back in 12 equal monthly instalments.

As you saw in the example earlier, it gives you a clear and comparable way to calculate the cost of borrowing. Building on that example, here’s how representative APR helps you to compare borrowing costs:

Borrowing £2400 over 12 months

	LENDER ONE	LENDER TWO
Purchase rate (interest rate)	20%	15%
Set-Up Fee	£0	£120
Annual Fee	£0	£120
Representative APR	20%	25%
Total repayable (amount borrowed + interest + fees)	£2880	£3000

If you look at the purchase rate, Lender Two appears cheaper (15% vs 20%). However, the APR includes the additional fees and, as you can see, the APR for Lender Two is in fact higher than for Lender One. This tells you that you would pay more with Lender Two.

APR with Chrysalis Finance

At Chrysalis Finance, we offer payment options for patients who wish to spread the cost of private medical or dental treatments. The good news is that many of those payment options have an APR of zero. There’s no interest and no fees.

Interest-free payment options are typically for agreements where the full amount is paid back in 12 monthly instalments. If patients prefer lower payments but over a longer period, then interest is charged (but never any set up or annual fees) and the APR is clearly stated. This gives patients a range of payment options and it means they can make their decision armed with all the facts.

If you are a clinic and you would like to offer your patients simple, clear payment options, get in touch and we’ll explain how you can become a Chrysalis Finance partner clinic. Once we have set you up to offer payment options, you can let your patients know they can spread the cost of their treatments. For them, the application process is speedy and the offer, tailored to their requirements, is clear and easy to understand, including the APR information.

https://chrysalisfinance.co.uk/contact-us/