Annual Percentage Rate

What is an APR?

An Annual Percentage Rate (APR) is an interest rate that can be used to compare the cost of credit between lenders. Annual Percentage Rates were introduced by the Consumer Credit Act 1974 to force lenders to include all elements of purchasing credit that are incurred in the first year, such as arrangement fees.

Not only does it take interest into account, but it also takes annual fees and any other associated charges over the course of a year into account.

It is one of the core pieces of information included in a Schumer Box, usually described as a representative or advertised APR, which simply means more than 50% of their customers accepted are likely to be given that rate or better. In reality, you may be offered a higher or lower APR based on your credit history.

Although calculating an APR is straightforward for a personal loan or for a mortgage, it can become more complex when working out credit card borrowing. The use of a credit card varies so much that assumptions are made on how much of the credit card debt is outstanding is repaid each month, and when in the month the payment is actually made.

Similarly, APR is equally unhelpful as a measure when comparing the costs of payday loans.

Each credit card company makes its own assumptions on usage; there is no standard or prescribed model – and this is where confusion can arise. Because of this, Annual Percentage Rates quoted by credit card companies should therefore be used as a rough guide, as your own experience may produce a different cost of credit, either much lower or higher, depending on many factors.

If you are looking to take out any form of credit, then you should try and get the lowest APR that you can, as this will be the total amount of interest that you are expected to repay over the course of your agreement. Ensure that you read the Summary Box fully to understand when any introductory offers expire and the subsequent rate that will then apply.


Q: What APR will I get when I apply for credit?

A: That will depend on the information on your credit file. If you have got a good history of borrowing and repaying, chances are you’ll be offered the advertised rate or lower. If you have little credit history or adverse credit on your file, you may be offered a higher rate.

You can see the information that lenders will assess this on by checking your credit report. If you haven’t already, you can try checkmyfile FREE for 30 days , then for just £14.99 a month afterwards, which you can cancel at any time online. You’ll get complete access to the UK’s most detailed credit report, letting you see what lenders see.

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