In a bid to increase transparency in the market, credit providers are being forced to display the APR that the majority of customers (51%) are offered. But instead of making things clearer, this may actually add to the confusion, with three quarters of consumers (75%) saying they don't understand representative APRs. It is also possible that the new representative APR could be higher, which may put nearly 13 million people off applying for credit.
Stefan Maryniak, personal finance expert at uSwitch.com, said: "With over half of consumers unaware of the new initiative and just a quarter understanding the new representative APR, the directive may leave consumers baffled. The biggest worry is that if the advertised APR suddenly rises, the credit market may see a substantial fall in applications.
"If this new directive is to help consumers, they need to be aware of it and understand what it means for them. But this should also be a wake-up call for consumers to take control of their financial situation. One very simple but important step they should take is to find out their credit rating, which can be a big help when looking at financial products."
