Everything you need to know about APR


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APR, we’ve all heard of it when applying for a credit card or taking out a mortgage– but what does it actually mean?


Finding the right credit card or loan can be confusing. You need to navigate sometimes confusing terms and deal with interest rates and APR.

But what is APR, and how does it work? In this quick guide we'll explain what APR means and why you need to understand it.

What is APR?

Annual Percentage Rate or - APR - is a way of measuring the interest rate (and any other charges which are applied) to a number of financial products such as personal loans, credit cards and hire purchase agreements.

APR represents the amount of interest you'll pay annually if you've borrowed money from any of these products. APR acts as a standardised way to show the cost of borrowing over a yearly period.

APR is calculated using a formula laid out in the Consumer Credit Act (1974), and every lender must follow it.

The most important thing you can do is make sure that you look at the APR and compare the total amount you will be paying back when comparing loans.

Hang on - what is an interest rate?

Broadly speaking, a standard interest rate is the amount of interest due per period as a proportion of the amount lent.

This is usually expressed as an annual percentage.

What does 'representative' mean?

A representative APR is an advertised amount that a minimum percentage of customers will pay. To be representative it must be the rate offered to at least 51% of people, but it's not guaranteed and means that nearly half of anyone applying for a credit card or personal loan could pay more than the representative APR that is advertised.

What is personal APR?

A personal APR is the rate offered based on the customer's personal circumstances and the amount they wish to borrow. This is only determined once a full application has been submitted. What's the difference between an APR and an APR(C)?

An APR(C) stands for Annual Percentage Rate of Charge, and is the interest rate associated with mortgages, including second charge mortgages. With a mortgage the APR(C) does not change, if you don't meet the lending criteria for the advertised APR(C), the mortgage product will not be available to you. You don't get offered a personal APR(C).

How is APR is calculated?

APR is calculated using a number of variables.

It takes into account:

  • The interest rate
  • When it's charged (daily, weekly, monthly or yearly)
  • Initial fees (a bank will often charge a fee when a finance deal is signed)
  • Any compulsory charges applied to the loan which has to be paid as a condition of taking out the loan.

An example of APR

Representative example: If you borrow £10,000 over three years at a Representative rate of 3.1% APR and an annual interest rate of 3.1% fixed you would pay 36 monthly instalments of £291.06. Total charge for credit will be £478.25.

The total amount repayable is £10,478.25

Representative example: If you borrow £10,000 over three years at a Representative rate of 4.9% APR, £154 borrowing fee and an annual interest rate of 3.80% fixed you would pay 36 monthly instalments of £298.78.

Total charge for credit will be £756.14. The total amount repayable is £10,756.14

Why is APR important?

APR is important because it prevents lenders from hiding any additional costs, ensures you get a true representation of borrowing, and allows fair comparisons between lenders when considering a product. You can be assured that you are getting yourself the best deal, and it makes the whole process a lot simpler.

What can affect your APR?

Lenders use data from your credit file to get a full picture of your current borrowing and repayment history. If you have missed repayments on any past lending, including credit cards or mobile phone contracts, they will assume that lending to you carries greater risks; this can affect the rate of interest offered.


The APR should be seen as a guide for comparing one loan with another based on their total cost. It is not a perfect measure of the total cost of borrowing as it does not include costs that are not a compulsory part of the loan. The rate is not guaranteed, and the company may offer a higher rate than the headline based on your current circumstances.

Looking to take out a loan? Take a look at Admiral's Personal Loan Calculator to find out more.

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