What is a credit card?

What is APR?

What does APR mean? In short, annual percentage rate, but there’s more to it than that.

Our simple repayment calculator below shows you the total cost of your credit card, how much interest you’ll pay, and how changing your monthly repayments impacts that:

In this guide we explain:

Personal finance is full of confusing terms and acronyms, and the phrase APR is certainly one of them, leaving many of us wondering ‘what does APR mean’?

Luckily it’s not that hard to answer the question ‘what is APR’. APR is short for annual percentage rate, it is the annual rate of interest you will be charged for borrowing. You will find it advertised on any borrowing product from credit cards and loans to mortgages

Annual percentage rate (APR) explained

APR is the annual percentage you will be charged to borrow money, and all financial products that lend you money must show the APR rate so you can fairly compare products.

As such you should think of the APR as the cost of borrowing. It will cost you more to borrow on money on a credit card with a high APR than a card with a low APR.

APR is calculated the same way by all lenders and takes any additional fees and how often interest is charged into account, making it a great way to compare different financial products that would be difficult to compare side-by-side otherwise.

How does APR work?

How APR works is best explained with an example.

If you borrow £1,000 on a credit card with a 12% APR, over the course of a year it will cost you £120 (if you pay nothing back). However, as you are likely to have to make some minimum repayments, the total interest you will actually pay over the course of the year will less than this.

APR is typically added to a debt on a monthly basis, to find a monthly interest rate simply divide the APR by 12. So if the APR is 12% the monthly rate is 1% and if you owe £1000 you will be charged £10 interest each month.

It’s also worth noting that the longer the period over which you spread your repayments, the lower the monthly cost but the higher the overall interest paid.

Low APR credit cards

Compare a range of low APR credit cards on our comparison table.

Low APR credit cards

Typical or representative APR

While personal APR is the rate that you will pay if you take out that financial product and borrow money on it, things get more complicated with a typical or representative APR.

A representative APR is what you are most likely to see on commercials for credit cards and loans, but beware, what you see is not always what you get.

Representative or typical APR refers to the rate that at least 51% of people who are accepted for that product will pay.

That means that up to 49% of people who take out that product may pay a higher APR than that advertised, so always look out for the word ‘representative’.

And there’s nothing in the law to say how much higher the rate you are offered is in comparison to the representative APR.

What is APR

What can you do?

The problem with typical or representative APRs is that you don’t know the rate you will be offered until you apply.

However, every time you apply a mark is left on your credit file, meaning you can’t apply for too many credit products at the same time.

The only thing you can do is read the small print and be aware of this situation. For example the advertised APR may be dependent on you fulfilling certain conditions, or applying over the internet of phone.

It can also be useful to check your credit report to get a clear picture of your financial history. If you have a good credit file you are more likely to be offered the headline rate.

Low APR credit cards

Compare a range of low APR credit cards on our comparison table.

Low APR credit cards

Where can I find low APR products?

Low APR credit cards are a good choice for sustained borrowing, as a consistent low APR will help keep your costs down in the long term.

There are several low APR credit cards to choose from and it’s worth comparing them all, but Bank of Scotland currently offer the cheapest long term APR for any credit card.

Is APR is the most important thing to consider?

Though APR may sound like the only thing you need to consider when borrowing money or choosing a credit card it’s not.

Choosing a sensible form of borrowing depends entirely on what you need it for, your financial history, and how quickly you are able to pay it back.

For instance, if you have a poor credit history you may struggle to find a credit card or loan with a low APR. In fact, you may struggle to find any form of credit at all.

However, if you have a poor credit history, low APR is not what you need. Rather, you’d be better off choosing a so-called credit builder card which has a high APR.

It works by borrowing a little on it and repaying everything in time to avoid interest payments, and building your credit file.

Similarly if you have a high amount of debt on one card and want to transfer that debt you’d be better off with a good balance transfer card than a low-APR card.

Or if you plan on using your card predominantly for shopping you might be better off with a rewards or cashback credit card.

And if you know you will be able to pay back your balance in full every month, then the APR doesn’t matter as you won’t pay any interest.

Rather low APR products are best for steady and planned borrowing. If there is a fixed amount you need and will pay it back steadily in regular instalments, then choosing your product according to APR is vital.


Although they may sound like roughly the same thing, APR and AER have completely different meanings.

AER, or annual equivalent rate, is the APR equivalent for savings accounts, and tells you how much your money will earn in interest over the course of a year.

The AER will allow you to compare different savings products.

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