While the annual percentage rate (APR) remains the standard measure of comparing the cost of loans and must be disclosed to borrowers, two key aspects differentiate the DAR from it.
The DAR is calculated for any period of time for which the loan may be kept; and it takes into account all payments and charges over the period for which the mortgage is held. The APR is calculated on the assumption that loans will be held until maturity. However, the majority of mortgages are currently repaid in a few years, meaning that APR information may not represent the true cost of a loan.
Michael Coogan, director-general of the CML, said: “The DAR provides a useful basis for discussion on the ways lenders can make consumer information as comprehensive as possible.
“As the research points out it is not fair to describe the APR as the ‘wrong’ way of calculating the cost of loans. In fact, it is a statutory requirement for lenders to use it.
“The DAR itself does not provide all the answers, but it is a useful measure for consumers who are uncertain about how long they will hold their mortgages, and the brokers who advise them.”
Steve Brockman, director of A2B Mtg Co Ltd, said: “I’ve not met a client that knows what APR is until I explained it. Anything that aids clarity for the client is a good thing, as the APR tends to confuse clients.”
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