APR stands for annual percentage rate. It is the amount of interest you pay annually on any money you borrow.
The APR advertised is the rate available to at least 51% of those accepted for that product. What you pay will depend on your personal financial credit worthiness. When you successfully apply for a credit card or loan you will be told the APR you will pay.
APR is the annual percentage rate of interest you are charged to borrow money. All loan products must show the APR rate available to at least 51% of customers so you are able to compare them fairly. You may pay more, or sometimes, less.
A high APR means that you will be paying a higher interest rate on any money you borrow and do not repay on your credit card.
The APR quoted on a card means the annual interest rate you will pay. It is not the only cost that you might pay on a credit card, but it is important.
APR should be advertised on all borrowing products, from credit cards and loans to mortgages.
As part of industry regulations, all lenders calculate APR the same way. To make it easier to compare loan products, APR takes into account any additional fees and how often you're charged interest.
Our repayment calculator shows you:
The total cost of your credit card
How much interest you'll pay on the debt
How quickly you could clear the balance by changing your monthly repayment amount
How APR works is best explained with an example:
If you borrow £1,000 on a credit card with a 12% APR (and you do not repay any of the debt), you will pay 12% of the £1,000 you borrowed so it will cost you £120 in interest over the course of a year.
The APR is typically added to your debt on a monthly basis. To find the monthly interest rate, divide the APR by 12. The monthly rate on a 12% APR is 1%. If you owe £1000, you will be charged £10 interest each month.
The longer the period over which you spread your repayments, the lower the monthly cost... but the higher the overall interest paid.
When you compare credit cards, the APR is advertised as either a 'typical' or 'representative APR'.
Representative or typical APR refers to the rate that at least 51% of those accepted for that product will get.
Up to 49% of the remaining applicants may be charged a higher APR. This can understandably be a bit confusing, given you do not know if this is the APR you will actually receive. It means most people will receive this, but not all.
The typical APR is a guide to the amount of interest most people are likely to be charged. However, it may be higher depending on your personal financial circumstances and your credit rating.
Find out more about how your personal credit rating or credit score affects the interest rate you will be charged with our guide to credit scoring.
To get the best APR rate, you will need to have a good credit score.
Despite the advertised APR, you will not know the exact APR rate you'll get until you apply and are told you are successful in your application.
The better your credit score, the lower risk you present to a lender that you will default and not pay back the money you have borrowed. So lenders charge higher APR rates to customers that they consider higher risk.
Every time you apply for credit, the loan provider performs a hard credit check. This leaves a mark on your credit file. Lots of applications can make you look desperate for credit. It is unwise to apply for too many credit products at the same time.
In order to get the representative APR, you may have to meet certain conditions and credit score criteria. To see what you could get based on your circumstances, always read the small print first.
Check your credit report before you apply for credit. You may need to improve it to be eligible for the top credit products. You're more likely to be offered the advertised APR if you have a good credit rating. A lower APR is a great motivation to improve your credit score.
0% purchase credit cards often charge around 21%-23% APR after the interest-free period ends.
Any credit card offering lower than 21% is cheap relative to the market trend. Anything over 24% is towards the expensive side.
If you pay your balance off each month the APR will not be as important. However, if you forget to pay it off and you are paying a high APR, the interest charges will rack up.
Some store cards have higher APR rates than traditional credit cards.
Higher rates for credit cards are usually more likely for bad credit and credit builder cards, which can have anything between 24%-50% APR. If you have to get one of these cards, try to repay in full to avoid having to pay these high rates.
Premium credit cards that offer big rewards on your spending often have high APR rates too.
Consistently low APR cards will help keep your costs down in the long term, so they could be a good choice if you need to borrow over a year or more.
APR should not be the only thing to think about when borrowing money or choosing a credit card.
Other things to consider are:
Late payment charges
Your credit rating
Take a look at our video on the other costs of having a credit card:
Choosing the right type of card for you depends on what you need it for. Check your credit score to make sure your credit file is in the best state possible before you apply.
Use our eligibility checker to see if you're likely to get the card you want. We only perform a soft credit check, so it will not harm your credit rating. Checking your eligibility could reduce the chance of being rejected.
Low APR credit cards are good for steady and planned borrowing and are useful cards to have in your wallet for the long term.
To borrow without paying any interest, consider a 0% purchase card. The 0% interest is only applicable for a limited period of time. After that, the card reverts to a relatively high APR.
If you are being charged a high amount of interest on existing credit card debts, you may benefit from switching to a credit card with a lower APR and interest rate.
If that is the case, a 0% balance transfer card could help. Like with 0% purchase cards, the 0% on balance transfers only lasts for a fixed period.
For those planning to use a credit card mostly for shopping, and who know they can pay off your balance in full each month, a rewards or cashback credit card could be a good choice. The APR is often high on these cards, but that won't matter provided you clear the balance each month.
Anyone with a poor credit rating or little credit history may be better off choosing a credit builder card.
You can avoid interest charges while improving your credit score by borrowing responsibility and repaying on time every month. Once your score has improved, consider a different credit card with a lower APR.
APR and AER have completely different meanings.
AER stands for annual equivalent rate. It is the amount of interest you will earn on your savings and deposits over the course of a year.
The representative AER allows you to compare different savings products. Think of APR as a cost (as you will be paying interest) and AER as a saving (as you will be earning interest).