A guide to APR and credit cards

Before you take out a credit card or switch to a new one, make sure you’ve got your head around the lingo. Find out what APR means with our handy guide.

    Published:05 May 2022

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    What does APR mean on a credit card?

    APR stands for Annual Percentage Rate. The APR on a credit card is a calculation of the annual interest rate and any annual account fees.

    The APR is the total annual cost of using a particular credit card, rather than the cost of the interest rate alone.

      How does APR work?

      The APR on a credit card is the annual compound interest rate that you will be charged for your borrowing. For example, if you borrow £100 for a year on a credit card with an APR of 9.9%, you will owe £109.90 at the end of the year.

        What is a Representative Interest Rate?

        This is the APR for purchases plus any standard fees that most accepted customers will receive when they open their credit card account. When you apply, your credit card provider will use your credit history to assess which APR to give you. While the majority of customers will be given the representative rate, some may be given a higher rate depending on their circumstances.

          What does representative APR mean?

          When you’re browsing new credit cards, you’ll see representative APRs advertised. This is the APR for purchases that most accepted customers will receive when they open a credit card account.

          This will be visible to you before you apply for a credit card. It is designed to help you compare different credit cards in the market. It is made up of the Representative Purchase Interest Rate, plus any standard fees that will be charged per year. For example, if a credit card has an annual or monthly fee, this will be added to the representative purchase interest rate to give you an effective cost of borrowing for that credit card.

            What’s my personal APR?

            Not everyone will get the representative APR. Your personal APR is calculated when you submit your application. When you apply for a credit card, the lender will consider a number of factors when deciding what APR to offer you. These include things like your credit history, credit score and current income and outgoings.

            Wondering how credit ratings can change things like your APR? Check out our guide to how your credit score works.

              How interest rates work

              When you’re browsing different credit cards, you’ll see that most have an annual variable interest rate advertised. This is the rate that the lender expects most customers will get, however the actual interest rate you are offered may differ as this depends on your individual circumstances.

              Interest is what you will be charged on the amount you borrow on your credit card. If you don't clear your balance in full by the due date each month, you'll be charged interest on it. Sometimes credit cards have introductory offers on them, like a 0% interest rate. Offers like these allow you to borrow for a set amount of time without having to pay interest on purchases, balance transfers or money transfers - depending on the type of card you choose.

              You may be charged a transfer fee if moving an existing balance from another credit card or transferring money to your bank account. This is often a percentage of the total amount that you transfer and should be clearly set out to you before completing the transaction.

              To keep your introductory rates, you will need to pay at least your minimum payment by your due date every month. You can set up Direct Debits and payment alerts to help you keep on track with your payments. Before the end of your introductory period, your lender should send you a reminder of the standard rate of interest you will be moved on to.

                What should I remember when it comes to APR?

                When you apply for a credit card, the APR you are offered is based on an assessment of your own personal circumstances, so it may be different to the representative APR.

                Representative APRs are normally based on an assumed credit limit of £1,200, however the credit limit offered also depends on your circumstances. Lenders show an assumed amount to help you work out and manage your finances.

                The representative APR you see advertised on credit cards is normally based on the credit card’s purchase interest rate. It's the amount of interest you'd pay on purchases such as your grocery shopping, if you didn't pay the full balance. The APR might be different for money or balance transfer credit cards.

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