What is APR?
What APR really means on loans, credit cards and car finance — how it differs from the interest rate, why “representative” isn’t what everyone gets, and how it compares to AER and APRC.
APR in one sentence
APR (Annual Percentage Rate) is the yearly cost of borrowing, shown as a percentage, that bundles the interest rate and most compulsory fees into a single figure. It exists so you can compare a loan, a credit card or a car finance deal on one number instead of trying to add up rates and fees yourself.
- APR helps you compare borrowing on one number.
- Representative APR isn't guaranteed — your personal APR can be higher.
- 0% deals can still have fees.
- APR is not the same as the total cost — a longer term can cost more even at a lower APR.
APR vs the interest rate
They're not the same thing. The interest rate is only the charge on the money you borrow. The APR also folds in mandatory fees — an arrangement fee, for example — spread across the term. That's why two deals with an identical interest rate can show different APRs, and why APR is the fairer basis for comparison.
The catch: “representative” APR
Most advertised rates are a representative APR — the rate that at least 51% of accepted applicants must receive. The remaining 49% can be offered something higher. So the rate on the poster is an example, not a guarantee; your personal APR depends on your credit file and circumstances and is only confirmed when you apply.
How APR drives your monthly payment
| At 6.9% APR | ~£197/month · ~£1,800 total interest |
| At 12.9% APR | ~£226/month · ~£3,600 total interest |
The same loan, double the interest — purely from the APR. Try your own amount and term →
APR, AER, APRC and EAR — don't mix them up
| Rate | Used for | Shows |
|---|---|---|
| APR | Loans, credit cards, car finance | Yearly cost of borrowing, incl. fees |
| AER | Savings accounts | Yearly return with compounding |
| APRC | Mortgages | Whole-term cost of a mortgage, incl. fees |
| EAR | Overdrafts | Effective Annual Rate on what you borrow |
A higher AER is good (you earn more); a higher APR or APRC is bad (you pay more).
What about 0% APR?
A 0% deal genuinely charges no interest during the promotional period — but it reverts to a standard APR when that ends, may carry a fee (a 0% balance transfer, for instance, usually has a transfer fee), and still needs minimum payments kept up. It only saves you money if you clear the balance before the 0% window closes.
Frequently asked questions
What does APR mean?
APR stands for Annual Percentage Rate. It’s the yearly cost of borrowing shown as a percentage, and it bundles the interest rate together with most compulsory fees, so you can compare deals on a single number. The higher the APR, the more the borrowing costs.
What is the difference between APR and the interest rate?
The interest rate is just the charge on the money you borrow. APR is broader: it includes the interest rate plus most mandatory fees (like an arrangement fee), spread across the term. Two loans with the same interest rate can have different APRs if their fees differ, which is why APR is the fairer way to compare.
What does “representative APR” mean?
A representative APR is the rate that at least 51% of accepted customers must be offered. The other 49% can be given a higher rate. So the advertised APR is an example, not a promise — the rate you’re actually offered depends on your credit history and circumstances, and can be higher.
What is the difference between APR, AER and APRC?
APR is for borrowing (loans, cards, car finance). AER (Annual Equivalent Rate) is for savings — it shows the yearly return with compounding. APRC (Annual Percentage Rate of Charge) is the mortgage equivalent of APR, covering the whole cost of a mortgage including fees over its full term.
Is 0% APR really free?
For the promotional period, there’s no interest — but read the detail. 0% deals revert to a standard APR when they end, may carry a fee (such as a balance-transfer fee), and usually require you to keep up minimum payments. They’re only “free” if you clear the balance before the 0% window closes.
See what an APR actually means for your monthly payment.
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