APR means Annual Percentage Rate. It’s the cost of borrowing money over a year on a credit card or loan. It takes into account interest, as well as other charges you may have to pay, such as an annual fee.
When you’re looking at potential credit cards or loans, you may see a representative APR advertised. Given that lenders offer different interest rates based on your individual application, representative APR is an example that allows you to compare between lenders and products quickly without having to apply. To advertise the rate as a representative APR, the lender needs to offer the rate to at least 51% of the customers who successfully apply.
The representative APR includes the rate of interest. For credit cards, there can be different rates so the APR uses the rate which applies to the way the card is most commonly used. This is usually the standard purchase rate. It also takes into account other charges you'd automatically have to pay such as an annual fee or loan arrangement fee.
For credit cards, representative APR is based on a credit limit of £1,200. It assumes you spend the full £1,200 on the first day and then pay it back in equal, regular instalments over a year without spending anything else.
Explore: How do credit cards work?
| Example 1 |
Example 2 |
|
|---|---|---|
| Purchase rate (variable) | 21.9% | 18.9% |
| Annual fee | £0 | £195 |
| Credit limit | £1,200 | £1,200 |
| Representative APR (variable) | 21.9% | 59.3% |
| Purchase rate (variable) | Purchase rate (variable) | |
|---|---|---|
| Example 1 |
21.9% | 21.9% |
| Example 2 |
18.9% | 18.9% |
| Annual fee | Annual fee | |
| Example 1 |
£0 | £0 |
| Example 2 |
£195 | £195 |
| Credit limit | Credit limit | |
| Example 1 |
£1,200 | £1,200 |
| Example 2 |
£1,200 | £1,200 |
| Representative APR (variable) | Representative APR (variable) | |
| Example 1 |
21.9% | 21.9% |
| Example 2 |
59.3% | 59.3% |
While the purchase rate in the second example is lower than the first example, the £195 annual fee is included in the representative APR – so the representative APR rises to 59.3%.
However, it's important to note that representative APR doesn't take into account the benefits you can earn from using different kinds of credit cards.
For credit cards, the representative APR assumes you only use the card for purchases. It doesn't take into account different rates and fees that might apply if you use the card in different ways, such as for balance transfers or cash withdrawals.
It also doesn't include any fees or charges for things like late payments, going over your credit limit or returned payments. Only compulsory charges are included in the representative APR – so charges like payment protection insurance aren't included either.
Explore: What is a balance transfer?
The representative APR helps you quickly compare credit cards and different types of loans. It will not necessarily match up to what a card or loan actually costs to you. That will depend on the final rate you’re offered, how you use either the credit card or loan and how much you repay each month.
