Finance glossary
APR — Annual Percentage Rate
Also known as: Annual Percentage Rate, Representative APR, APRC
In simple terms
APR is a way of showing roughly how much borrowing will cost you over a year, including the interest rate and certain compulsory charges — so you can compare one deal against another.
On this page
What does APR mean?
APR stands for Annual Percentage Rate. It is a single figure that shows the cost of borrowing over a year as a percentage of the amount you borrow. It brings together the interest rate and certain unavoidable charges, so two loans can be compared on a like-for-like basis rather than by interest rate alone.
Because lenders must work APR out in the same standard way, it is the fairest quick comparison between credit deals — the higher the APR, the more expensive the borrowing is, all else being equal.
How APR works
APR expresses the interest you pay on what you borrow, plus any charges you have to pay to get the credit, as a yearly rate. It assumes the credit runs for the full agreed term and that you keep to the payments.
Because it is annualised and includes charges, APR is usually a little higher than the headline interest rate. It does not include optional extras — for example, an optional payment-protection add-on — or default charges you would only pay if you missed a payment.
APR vs interest rate
The interest rate is the cost of borrowing the money itself. APR includes that interest plus certain compulsory fees, such as an arrangement or account fee, which is why the APR is usually higher than the interest rate.
If you are comparing two loans, comparing the APRs captures more of the true cost than comparing interest rates alone — though for the total pounds-and-pence cost you should also look at the total amount payable over the whole term.
Representative APR
When a lender advertises a “representative APR”, at least 51% of people accepted for that product must get that rate or better. The other rate you might be offered depends on your circumstances and creditworthiness.
So an advertised 6.9% representative APR does not guarantee you personally 6.9%. You only know your actual rate once the lender has assessed your application — which is why a quote that uses a soft search can be useful before you apply.
How could this affect me?
A higher APR means each pound you borrow costs more, and small differences add up over a long term. On a large or long loan, even a couple of percentage points can mean hundreds of pounds more repaid.
Treat an advertised APR as a guide, not a promise. Check the actual rate offered to you, the total amount payable and any fees before you sign — the cheapest headline APR is not always the cheapest deal once fees are included.
Example
Borrow £10,000 over 5 years at a representative APR of 7.9%:
| Loan amount | £10,000 |
|---|---|
| APR | 7.9% |
| Term | 5 years (60 months) |
| Monthly repayment | £200.99 |
| Total amount repayable | £12,059.19 |
| Total interest & charges | £2,059.19 |
Figures are illustrative and rounded. Your actual rate and repayments depend on the lender and your circumstances.
Things to watch out for
- A low advertised APR is “representative” — you may be offered a higher rate once assessed.
- APR excludes optional add-ons and default charges, so it is not the whole story.
- For very short-term borrowing, APR can look enormous because it is annualised — compare the actual pounds cost too.
- 0% purchase or balance-transfer deals often carry fees or revert to a much higher rate later.
Know your rights
- Lenders must show the APR clearly, and a representative APR in most credit advertising, under FCA rules.
- Before you sign a regulated credit agreement you must be given pre-contract information setting out the rate, fees and total amount payable.
- Most regulated credit agreements come with a 14-day right to withdraw after signing.
- If you believe a lender misled you about the cost, you can complain and escalate to the Financial Ombudsman Service.
General information, not personal advice
Consumer Credit is an independent information service. We do not provide regulated financial advice or sell financial products. For advice on your own situation, speak to an appropriately authorised firm or a free service such as MoneyHelper. About Consumer Credit.
Sources
We checked this page against these official and authoritative sources.
- FCA, CONC 3 & 4 — financial promotions and pre-contract disclosure for consumer credit (opens in a new tab). Accessed 22 Aug 2026.
- MoneyHelper, What is APR and how does it work? (opens in a new tab). Accessed 22 Aug 2026.