What is an...

Annual Percentage Rate

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 make their products – specifically the cost – more transparent.

Any quoted APR represents the cost of credit for the first year of opening the credit agreement. An APR will be a combination of interest rates and annual fees and special offers, expressed as a single percentage.

Will my APR appear on my Credit Report?

Your Credit Report is a record of your credit agreements, showing their repayment history, current balance, and more. APR and interest rates, however, aren’t reported to or by the Credit Reference Agencies.

This is because the primary purpose of a Credit Report is to help a lender assess your creditworthiness, so your current interest rates would be largely irrelevant.

The APR that you’re offered is often influenced by the health of your Credit Report, so it’s a good idea to check yours before applying. Our Multi Agency Credit Report gathers your data from Equifax, Experian and TransUnion onto a single report, saving you time and making sure nothing important is missed.

You can try checkmyfile free for 30 days, then for just £14.99 per month. Cancellation is easy online, at any time.

How is APR calculated?

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

It is one of the core pieces of information included in a Schumer Box and is usually described as a representative or advertised APR, which simply means more than 50% of their customers accepted will be given the advertised rate. In reality, you may be offered a higher rate of interest and thus higher APR, based largely on your Credit History.

Although calculating APR is straightforward for a personal loan or for a mortgage, it can become more complex in the context of credit card borrowing. The monthly use of a credit card can vary so assumptions are made on how much outstanding credit card debt is repaid each month.

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 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, remember that you may not get the advertised APR, so you still might need to shop around to find the best deal for you. Ensure that you read the Summary Box fully to understand when any introductory offers expire and the subsequent rate that will then apply.

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