P A Meaning: What Does PA Stand For In Finance?

Industries have developed and evolved to use various terms and acronyms throughout human history, and PA is one of them. In the finance industry, “PA” is known to stand for “Per Annum”, which means “yearly”, but within a finance context, typically describes a type of payment made per year.

In this article, we will detail PA in full, why it’s used in finance, and how it relates to other types of rates like APR. We’ll also provide some tips on finding loans and other services with favourable PA ratios so you can start saving money today!

What Does PA Mean In Finance?

PA stands for “per annum”, a Latin term for “yearly”. In terms of finance, PA effectively means that a yearly payment of some kind is being made. This could be:

• Interest rate – The annum interest rate on a loan or savings account.
• Salaries – This refers to the amount of money an employee earns per year.
• Dividends – The yearly payment made to shareholders from the company’s profits.
• Rental payments – The yearly amount of money paid to a landlord for the sale of a property.

The overwhelming amount of cases that you’ll see in PA, however, is in regards to interest rates.

What Is PA For Interest Rates?

The term “per annum” will show up a lot to describe the per annum interest rate of any loans or credit card usage, for example, “interest rate of 0.04% per annum.” Despite saying per year, this doesn’t necessarily mean that the interest rate will stay the same every year.

What Are Some Examples Of PA Use?

PA is used often in mortgage repayment terms. The payments are taken out of your bank account each month for one year. The rate may rise or fall depending on if you’re able to pay.

Some financial service providers use PA to charge people over long periods until their debt is paid in full. Shorter loan terms tend to charge APR, as they don’t hold debt for too long.

Credit cards also use PA to calculate how much you have to pay back in the long run, but they usually only charge a small monthly fee, so most of their profits come from charging high interest rates.

What Is The Difference Between PA And APR?

APR stands for “annual percentage rate”, and it’s also used to identify interest calculations.

This is how the interest rate is calculated by both:

• PA – PA calculates the total amount of interest that will be charged over one year.
• APR – APR is calculated by dividing the interest rate for one year by 12 months.

Both can be used to calculate how much money you owe and when it needs to be paid back, but the types of transactions they apply to are different. APR typically applies toward loans/credit card balances, whereas PA measurements are applied to a wider range.

In terms of loans, APR is the annual rate of interest. PA pays attention to not only APR but also payment frequency, as well as the total number of payments over time (i.e., 360 monthly payments over thirty years).

How Is PA Used In A Real-World Finance Equation?

To illustrate exactly how the PA system functions, we will demonstrate via an example.

Imagine you’ve taken out a £200,000 mortgage loan, with a fixed interest rate of 4% PA over 30 years.

To break down what’s happening here:

1. Compound Interest – The interest calculated per year is based on the remaining principle, meaning the interest rate you pay in early years is higher, as it’s calculated on a higher principal amount.
2. Amortisation – Monthly repayments include principal and interest components, with the proportion of principal paid gradually increasing over time as interest reduces.
3. Fixed vs Variable Rate – The 4% PA fix simplifies calculations, but a variable rate would cause the PA to fluctuate, changing calculations.

How Does PA Affect Your Principal Amount?

Depending on the PA rate, how long you’ll be paying, and the type of loan, the principal amount can be affected positively or negatively. For example, a 5% interest PA on a credit loan means you’ll be charged 5% each year until the principal amount is paid back. But on a savings account, 5% PA means the bank will reward you with 5% of the total amount saved for keeping your money with them.

If you’re going for a loan, the lower the PA the better. If you’re the one loaning, the higher the PA the better.

What Factors Affect The PA/APR You Receive?

Age, credit rating, income level, disposable income and total length all affect your PA/APR rate. Any black spots on your credit score from unpaid bills etc. can also affect the terms, as well as anything else that may be of concern as far as re-payability is concerned.

Essentially, the lender will take all of these factors into account to decide what level of risk they are taking by lending you the money, how likely you are to pay it back, and what history you have of paying back similar loans in the past. If they rate you poorly, you will either be offered a very high PA/APR or will be refused altogether.

In very simple terms, PA/APR rates fall into these basic categories:

• Young, good credit, high income: PA/APR rates will generally range between 0% – 12%.
• Middle Aged with Average Income: PA/APRs are typically somewhere around 13%-20%.
• Older with low income: Rates may go up as much as 30%+. This is largely due to a lower ability to repay loans over time due to a lack of money or fewer years of life remaining.

These are very general categories and there are, of course, many people whose PA/APR offer will not match them but they work well as a rule of thumb.

Do Credit Cards Use PA Or APR?

In general, credit cards use APRs. However, some credit card providers offer PA rates on balance transfers or cash advances that are often lower than the APR. A good APR for a credit card is any rate from zero to 20%. This will depend on the type of interest you are paying. If it’s a cash advance, then the APR should be between 25% and 30%.

For other types of purchases, your APR can range anywhere from 12% up to 24%, depending on how much risk you want to take with your finances. A low-interest card may have an average APR in the 18%-21% range. Some cards offer no annual fee if you have excellent credit, but those that do charge fees usually cost around £100 per year or less (and sometimes they waive this fee in certain circumstances). It will also vary according to what features and benefits come with the card such as free airport lounges or airline miles.

What Is A Good APR For Savings Accounts?

A good APR for a savings account can range from 0 to 12%. This will depend on how much risk you are willing to take with your money. Some savings accounts may even have an average interest of 0% annually. Savings account interest rates are usually linked to the administering country’s national interest rates so they fluctuate with inflation and the general economic health of the country. In the UK, for example, the interest rates on savings accounts in 2007 before the financial crisis were 5.55% but in 2020 during the Covid-19 pandemic, they reached a historically low 0.64%.

How Can You Find Favourable PA Rates And APRs?

There are many different ways to find favourable PA rates and APRs. One way is by searching the internet for a specific type of loan, mortgage, savings account or other financial service that you require with an attractive PA and APR. You can also use sites like Bankrate to compare financial products side-by-side including various types of loans, mortgages, savings accounts and credit cards, as well as their associated APRs and PAs.

If you already have your Bank account then it might be worth taking advantage of any promotional offers your current bank offers such as discounted investment interest rates. You are more likely to receive a favourable PA/APR offer if you have been a loyal customer for many years because your bank will have confidence that they are not taking a risk by lending you money.

Conclusion

When it comes to financial services, always be on the lookout for the best possible terms. PA is similar to APR but there are key differences in the way they are calculated and you must know about both to make the right decision when it comes to loans, credit cards and bank accounts. Always shop around and pay careful attention to all the terms and conditions of any financial service or arrangement that you are considering.

If you don’t understand something, especially the lines of small print which often appear in financial agreements, speak to your accountant or financial advisor and they will be able to help you get a clearer idea of what is on offer.