What does APR mean?

What is APR?

In the UK, APR stands for Annual Percentage Rate, and it’s a standardised way to show the total cost of borrowing money over a year. It includes not just the interest rate, but also any compulsory fees or charges, giving you a clearer idea of what a loan, credit card, or finance deal will really cost you.

Why is APR Important?

APR makes it easier to compare different financial products. Whether you're looking at:

• Personal loans

• Credit cards

• Mortgages

• Car finance

…it helps you compare offers on a like-for-like basis, even if one lender has lower interest but higher fees.

How is APR Calculated in the UK?

APR is calculated using a formula that includes:

• Interest rate (what you're charged for borrowing)

• Fees (like arrangement or admin fees)

• Loan term (how long you're borrowing for)

Example:

If you borrow £1,000 for one year and repay £1,100 (including £80 in interest and £20 in fees):

APR=(£80+£20)/£1,000×100=10%

APR is expressed as a percentage, and it's based on standard assumptions (e.g., the full amount is borrowed and repaid over the full term).

Representative APR vs. Your Actual APR

• Representative APR is the rate that 51% of applicants are expected to get.

• Your personal APR may be higher or lower, depending on your credit score, income, and lender’s assessment.

Quick Notes:

• APR does not include optional charges, like late payment fees or payment protection insurance (PPI).

• For credit cards, if you clear your balance in full each month, the APR is less relevant—since no interest is charged.

• For mortgages, the APR includes arrangement fees and any other mandatory charges spread over the life of the deal.

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