Fear of finance

Some argue that divorce and bereavement are the quickest route to a sense of complete hopelessness while others swear that it is a choice of offers of a substantial loan. The financial consequences of being conned by an avuncular adviser weigh heavily. And just when you are wracked with complete indecision, the reptile hits you with the APR

The APR? A mist descends over the eyes, the hands take on the consistency of a fish and the brain flashes up a message the neurological equivalent of "sorry old son, you're on your own on this one."

The annual percentage rate was the yardstick designed in 1977 to give the public a true benchmark with which to judge competing rates of interest. If the arithmetic was a little tricky, the concept was simple enough - to divide the total cost of a loan, including fees and charges, over the period of the loan.

Given a fair wind, it might even have become embedded in the national culture. But the government reckoned without the financial services industry and the courts.

Never slow to realise the potential of a new statistic, banks, building societies, credit card companies and second-hand car salesmen began using the APR as a badge of approval. The public was inundated with loan offers, each bearing two different rates of interest - the flat rate and the APR.

Unfortunately, the human brain is not designed to cope with two sets of interest rates transmitted simultaneously. In any case, most punters had not a clue how either had been calculated.

Then things got confusing. Someone in the Devon Trading Standards Office decided he didn't like the way the APR was calculated and took National Westminster Bank to court. M' Learned Friends, doubtless sensing a lucrative stream of test cases, found in favour of Devon and ordered a change in the way the APR is calculated. At a stroke it was rendered as useful as a 30-minute wait on East Croydon station.

Some building societies still use the old APR system for quotes given to individual customers in their branches. But like all lenders they must quote the new, lower APRs in advertisements. Of course for the loan shark it's a dream come true. Credit card companies and car salesmen can baffle people with APRs without fear of reprisal.

For the confused and frightened borrower, there is only one antidote. That is to ask your adviser to compare the cost of borrowing say pounds 1,000 under each offer and then express the answer in pounds, shillings (if you are still having trouble with decimalisation) and pence.