MOGI 2.8 Annual percentage rate (MCOB 10)

This section of the Guide explains the rules in chapter 10 of MCOB (MCOB 10) that set out how to calculate the APR. There are several occasions when you might need to state an APR, including in financial promotions and KFIs. The rules outline which costs are (and are not) included in the APR. These rules are very similar to the Consumer Credit (Total Charge for Credit) Regulations 1980. We have made minor changes, for example, to ensure consistency of wording with our other rules.

If you produce any material where MCOB requires you to state the APR, then you must calculate it in line with these rules.

Any charge that the consumer must pay to obtain credit must go into the APR calculation. The APR is therefore an indication of the true cost of the credit, taking into account all fees and charges as well as interest.

This includes all fees and charges payable to the lender or any third party. It will also include any fee you charge for advising on or arranging a mortgage.

You also include the cost of any tied products that the consumer must take out. For example, if you require a consumer to take buildings insurance as a condition of arranging a mortgage, the premium must go into the calculation.

Some fees and charges are excluded from the calculation (MCOB 10.4.4 R) including money transmission charges and non-tied buildings and contents insurance.

The rules set out the assumptions you must use to calculate the APR. For example, you must not include a fee that you add to the loan as part of the credit. There are also rules about how you should calculate an APR for a further advance and what assumptions you must make about interest rates at the end of a special offer period.