Many borrowers are left scratching their heads when they apply for a personal loan or a payday loan and do not get offered near the rate that was advertised. Customers with good credit histories and a strong repayment record in particular are confused by this, as they would expect to get the best rates possible.

The reason for varying interest rates is simple. Lenders are required by law to advertise a ‘Representative APR’ which must be the rate given to at least 51% of customers. In other words, the average customer will receive this rate, as more than half of customers will be offered the Representative APR. But for the remaining borrowers, the rates that are charged could be higher than advertised, or even lower.

APR stands for Annual Percentage Rate, so is generally most relevant for longer term loans, especially if your loan terms are over a year or more. And with long term loans, even the smallest difference in APR can make a big change in how much interest you’d be repaying in total. But when it comes to payday and short term instalment loans, if the Representative APR varies slightly from the rate you are given, it may not make a huge difference to the interest overall.

So why might a lender offer you a different rate to the one advertised? We’ve explored some of the main reasons below.