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What is Annual Percentage Rate or APR?

What is Annual Percentage Rate or APR?

APR stands for annual percentage rate and represents the amount of interest you'll pay annually on any money borrowed.

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.

Our 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

How does APR work?

As part of industry regulations APR is calculated the same way by all lenders and takes any additional fees and how often interest is charged into account, making easy to compare different financial products that would be difficult to compare side-by-side otherwise.

How to calculate APR on credit cards and loans

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 at least some minimum repayments, so the total interest you will actually pay over the course of the year would be 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.

Would you like a credit card with low APR for life?

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

Low APR credit cards

Typical or representative APR

While APR is the rate that you will pay on any credit or loan, how this number is advertised is slightly more complicated. APR is advertised as either 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. Meaning up to 49% of people who take out that product may pay a higher APR than that advertised.

What is APR and how to calculate APR?

What can you do to get the best APRs?

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 it's unwise to 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 and meeting credit score criteria.

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

What is a 'good' APR?

Most credit cards that have 0% interest introductory offers tend to have APRs around the 18-20% area.

So as a rough guide anything lower than 18% is cheap relative to the market trend, and anything dramatically over 20% is tending towards the expensive side.

But bad-credit and credit-builder cards tend to have higher APRs that can be anything between 24-50%. If you are getting a credit-builder or bad-credit card it's best to go for the card that has the lowest APR.

Similarly premium credit cards tend to have higher APRs, but this is normally due to the inclusion of hefty annual account fees. But of course, in exchange for these fees, there are usually impressive benefits for big spenders and frequent flyers.

Where can I find low APR credit cards?

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. You can find a selection of the low-APR cards currently on uSwitch below:

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.

Low APR credit cards are good for steady and planned borrowing, and are useful cards to have in your wallet for the long term.

But if you want to borrow without paying any interest at you could consider a 0% purchase card, but the 0% interest on these will only be applicable for a limited period of time before the card reverts to a relatively high APR.

If you are being charged a high amount of interest on existing debts on a credit card a 0% balance transfer card could help. But note, as with purchase cards, the 0% interest will be an introductory offer available for a limited period of time.

If you plan on using your card mostly for shopping, and can pay off your balance in full each month, a rewards or cashback credit card could be a good choice.

The APR won't matter if you can pay off the balance, rather you should look for the most lucrative rewards for your spending.

If you have a poor credit history, you may be better off choosing a credit builder card, even it does have a relatively high APR.

By borrowing responsibility and repaying everything in time to avoid being charged interest, you can build and improve your credit report and score. But you should plan to switch to a credit card with a lower APR as soon as your credit score has improved.


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

AER, or annual equivalent rate, is the amount of interest you will earn on your savings and deposits over the course of a year.

The representative AER will allow you to compare different savings products.

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