On long term, large sum loans such as mortgages, Annual Percentage Rate of Change (or APR for short) can be an effective measure to help consumers understand the cost of credit and compare value against other similar products.
As we discussed in our blog post, ‘APR and the cost of credit‘, the APR can be misleading and hard to understand for small, short-term loans. Small changes in these loans can greatly affect both the total cost of the loan, and see significant consequences to the borrower’s situation – but this isn’t always clear from the APR.
And it’s not just us.
In February 2025, ClearScore and EY released a report entitled Building a non-prime lending market that delivers for UK consumers which, amongst other things, recommended that the market should develop alternative methods of communicating the cost of short-term loans to consumers.
We were very happy to work with ClearScore again in co-funding a randomised trial to explore whether APR actually helps consumers understand the costs of short term small sum lending. The results really are compelling and we were pleased to be joined by over 200 people at the launch webinar in January 2025. Here are some of the highlights from this event:
First up, Kate Pender CEO of Fair4All Finance introduces the topic in the context of the shape and size of the credit market and an increase in illegal money lending in the UK.
Mike Ellicock from Plain Numbers and Max Mawby from Thinks Insight & Strategy, then explain their research methods and results. Their research looks at how consumers understand and make decisions about credit costs when shown different ways of representing those costs, compared to the standard APR.
Finally, we here from Tom Markham from ClearScore on what these findings mean and how ClearScore plan to take forward the research as part of a wider trial.
We applaud ClearScore for taking the lead on this project and on the work so far and see it as a key enabler for improving provision and access to affordable credit for the millions of people currently excluded from the market.
It was great to have the Financial Conduct Authority (FCA) joining us on the webinar and to hear their thoughts on the research and importance of appropriate access to affordable credit and of innovation in this space.
