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
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. But what is the difference between an interest rate and an APR?
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 to you for borrowing money. For example, if you borrowed £100 and the interest rate was 10% a year, you’d need to repay £110 to clear the debt.
Credit card interest rates range between 0% and 50%, but the average credit card charges about 18% or 19%. Credit cards with higher interest rates are typically aimed at those with a poor credit history, or those without a credit score, such as younger people. This is because they are deemed to be a higher credit risk, so the lender is looking to cover any potential losses in the event the borrower can’t pay.
Usually, interest rates are quoted annually, but not always. Payday lenders, for example, sometimes quote monthly interest rates because they can be very high.
The only difference between an interest rate and an APR is that the annual fee for the card, or arrangement fee, is added on. Therefore, a credit card’s APR will be higher than its interest rate if the card comes with an annual fee.
All this might sound confusing, but APRs are useful when it comes to comparing different credit card offers – because it tells you the overall interest rate. This should avoid you being surprised by fees afterwards. APRs are also used to compare mortgages and loans, both of which are likely to have fees attached, so you’ll know what to expect to pay
Who gets the advertised APR rates?
What is a representative APR?
Credit card providers are required to display a "representative” APR when they advertise a credit card offer. In theory, only 51% of people who are accepted for the credit card will be offered the representative APR.
If you're not offered the advertised rate, you'll receive a personal APR. This will probably be higher than the representative APR because it’s based on your credit score.
Under industry rules and regulations, all lenders must show representative examples and APRs of credit card deals in their financial promotions and advertising. A representative example takes into account the annual rate of interest you'll have to pay on everyday spending, together with any extra fees such as the annual fee.
When you see a representative example, it will be calculated using an assumed credit amount of £1,200. However, this doesn't necessarily mean you’ll be offered a credit limit of £1,200, or the interest rate is shown in the example, but it should help you figure out how much your financing might cost per year.
It’s worth noting the representative APR shown on adverts or promotions will always refer to the credit card’s purchase rate, which is the interest rate you’ll pay when you buy things with the card.
Other rates may apply for balance transfers, money transfers or cash withdrawals – but you should always avoid using a credit card for cash. You’ll see these different rates clearly when you compare credit cards with us, as we list these and other details for every card you’ll see on your results page.
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:
Previous credit agreements
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 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?
An APRC means annual percentage rate of charge – it’s the same as an APR but it applies specifically to secured loans and mortgages. With these types of loans, you’ll usually either be approved or rejected, so you’re unlikely to be offered an alternative APRC if your application isn’t successful.
Your APRC will show you the overall cost of your mortgage for the life of the loan (so this will take into account the initial starting rate, but also the long term rate which could be over 25 or even 30 years).
The APRC assumes the interest rate won’t change in that time – so it is really only useful as a guide or illustration of the charge - because chances are you’re likely to remortgage in that time, or if you stick to your lender’s standard variable rate it is likely to change over the long term.
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 which might apply if you use your card in other ways, balance transfers or cash withdrawals for example.
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.