Credit card APR explained
What is the difference between a representative and personal annual percentage rate? Read our guide to find out more about these often-confused rates
Key takeaways
Annual Percentage Rate (APR) includes the interest rate plus any compulsory charges, such as an annual fee.
Representative APR is the rate that at least 51% of accepted applicants are expected to get, but your personal APR could be higher or lower.
The representative APR usually refers to the card’s purchase rate. Different rates and fees may apply for balance transfers, money transfers or cash withdrawals.
APR can help you compare credit cards, but it won’t tell you the full cost if you use the card in other ways or miss payments.
What is Annual Percentage Rate (APR)?
An Annual Percentage Rate – often referred to as APR – is calculated by taking into account the interest rate on a credit card (or another borrowed sum, such as a personal loan) and any other charges such as an annual fee or arrangement fee.
APRs are used to compare credit card offers, making the process of finding the right card a little less complicated.
APR and credit card interest rates
When you take out a credit card, you’ll be told the interest rate you’ll pay. This is the cost of borrowing money if you don’t clear your balance in full each month. For example, if you borrowed £100 at an annual interest rate of 10%, you’d pay £10 in interest over a year if the balance stayed the same.
Credit card interest rates can vary widely. Some cards offer 0% interest for a promotional period, while cards aimed at people with a limited or poor credit history often charge much higher rates. On MoneySuperMarket, the median representative APR — the middle rate among eligible credit card results — is 24.90%
APR is slightly different from the interest rate because it also includes compulsory charges, such as an annual fee. This means a card’s APR may be higher than its standard purchase interest rate if the card comes with extra costs.
APRs are useful when comparing credit card offers because they give you a standard way to look at the cost of borrowing. But they don’t include every possible charge, so it’s still important to check fees for things like balance transfers, money transfers, cash withdrawals and late payments.
What is a representative APR?
Credit card providers must show a representative APR when they advertise a credit card offer. This is the APR that at least 51% of accepted applicants are expected to receive.
However, this doesn’t mean everyone who is accepted will get the advertised rate. If you’re accepted, you’ll be given a personal APR based on your credit history, income and other personal circumstances. This could be the same as the representative APR, but it could also be higher or lower.
A representative example usually takes into account the interest charged on everyday spending, along with compulsory fees such as an annual fee. Credit card representative examples are typically based on an assumed credit limit of £1,200.
This doesn’t mean you’ll be offered a £1,200 credit limit, or that you’ll definitely get the interest rate shown. It’s there to help you compare cards on a like-for-like basis.
What is personal APR?
A personal APR is a rate you’re offered by a credit card company after you have applied for a card. It might be the same as the representative APR but isn’t always: a personal APR is influenced by your credit score and personal circumstances, such as salary and household spending.
Your credit score depends on how you have handled credit in the past. You’ll have a good credit history if you have always repaid debts on time and haven’t exceeded your credit card or overdraft limit.
How you manage your household bills will also affect your credit score – energy and telecoms companies, for instance, can leave markers on your credit report if you pay late or fail to pay bills. These defaults will stay on your credit record for six years. Serious debt issues such as county court judgments (CCJs) or bankruptcy will also show on your credit report.
Other factors affecting your credit file include:
Your age
Previous credit agreements
Homeownership
Your employment status
If you are listed on the electoral roll
If you have joint credit agreements – their credit history will affect yours.
Generally speaking, if you have a good credit history you should pay less interest when you borrow money, and if you have a poor credit history you will probably pay more interest.
What is a good APR?
Although there isn’t a specific APR which is seen as a ‘good’ APR, the lower rate, the better. That's because you will be charged less interest and will keep your credit card costs down.
A good credit score should usually mean you’ll be offered a lower APR by lenders.
How does APR work with 0% credit cards?
When you compare credit cards, you’ll notice some have promotional offers. Typically, this will involve offering 0% interest on either purchases or balance transfers for a set period of time.
For example, you might see an offer for ‘0% interest on balance transfers for 12 months’ or ‘0% interest on purchases for six months’.
If you choose an offer that gives you 0% interest on purchases, it means that for the period stated you won't be charged interest if you use the card for spending.
The card will still have an APR that will be calculated using the ‘revert-to’ interest rate (this is the standard interest rate borrowing on the card will revert to at the end of the 0% period).
If you have a credit card with a 0% promotional offer, make sure you pay at least the minimum repayment each month.
The minimum repayment will be printed on your statement and will usually be a percentage of the outstanding debt or a cash amount.
If you miss a minimum payment, you could lose any 0% introductory deal – and interest will kick in immediately. You might incur a late payment fee too, typically £12, and it could affect your credit score.
What is APRC?
APRC stands for annual percentage rate of charge. It’s similar to APR, but it’s used for mortgages and secured loans.
APRC shows the overall cost of borrowing over the full term of the loan. For a mortgage, this can include the initial rate, the lender’s standard variable rate, and certain fees.
It’s useful as a comparison tool, but it’s still only an illustration. Many people remortgage before the end of their mortgage term, and variable rates can change over time.
What isn’t included in an APR?
It’s important to remember that with credit cards, the representative APR is the assumed rate for purchases made on the card.
The representative APR won’t factor in different rates and fees that might apply if you use your card in other ways, such as for balance transfers or cash withdrawals.
Personal Finance & Insurance Expert
Our expert says
“It’s sensible to understand what an APR is before you apply for a credit card, but it’s also wise to look a little bit deeper.
"How you use the card will have a big bearing on how much the interest rate and potential fees impact your finances.
"For example, an annual fee can’t be avoided, but if you pay off your card in full each month and don’t use it to withdraw cash, you should be able to avoid interest charges completely.”
Other useful guides
Here at MoneySuperMarket, we have a range of useful guides to help you better understand credit cards:
Compare credit cards with MoneySuperMarket
If you’re looking to apply for a credit card, make sure you get one that’s right for you.
You can search our wide range of card deals from leading UK lenders. And searching won’t affect your credit score in any way. We’ll show you your chances of being accepted – and if you’re pre-approved for any cards.
MoneySuperMarket is a credit broker – this means we’ll show you products offered by lenders. We never take a fee from customers for this service. Instead, we are usually paid a fee by the lenders, but the size of that payment doesn’t affect how we show products to customers.
Author
Tim Heming
Personal Finance Expert
Tim Heming is a journalist and editor who has written about personal finance for national newspapers and consumer websites for 15 years. Tim enjoys providing no-nonsense information to help consumers...
Reviewer
Victoria Russell
General Manager - Commercial
Vikki has worked across financial services for over 20 years, and for the last 15 years, created and nurtured a career within MoneySuperMarket Group, leading to her current role as General Manager...
