What is APR?
APR stands for annual percentage rate. It is a yearly percentage used to show the cost of borrowing, including interest and certain charges, so that loans and credit products can be compared more consistently.
APR quick reference
APR explained in plain English
APR helps you compare the cost of borrowing across different credit products. If two loans are for the same amount and the same term, the one with the lower APR will usually cost less. But APR should not be used on its own, because the total cost also depends on how long you borrow for and whether any fees are included.
For example, a £10,000 loan over five years at 6% APR will normally have a lower monthly payment and lower total interest than the same loan at 18% APR. But a loan with a lower monthly payment is not always cheaper if it has a longer term. The longer the debt lasts, the more time there is for interest to build.
APR is different from the simple interest rate. The interest rate tells you how interest is charged, while APR is designed to show the wider annual cost of the credit. It may include compulsory fees, such as an arrangement fee, depending on the product.
For credit cards, APR can be less straightforward because balances change as you spend, repay and carry debt forward. If you repay the full balance every month, purchase APR may not matter much. If you carry a balance, APR becomes very important because interest can continue adding to the debt.
How APR affects repayment cost
APR is annual, but most loan repayments are monthly. A higher APR usually increases the monthly payment and the total cost of credit.
monthly_rate = APR ÷ 12
Higher APR = higher monthly interest charge
Longer term = more months for interest to build
Total cost = total repayments + fees − amount borrowed
Estimate repayments from APR
Use the loan repayment calculator to see how a different APR changes monthly payments and total interest.
Simple APR example
The table below shows why APR matters when the amount and term are the same.
| Borrowing example | APR | Estimated monthly payment | Total repaid | Total interest |
|---|---|---|---|---|
| £10,000 over 5 years | 6% | About £193 | About £11,600 | About £1,600 |
| £10,000 over 5 years | 12% | About £222 | About £13,350 | About £3,350 |
| £10,000 over 5 years | 24% | About £288 | About £17,250 | About £7,250 |
APR vs interest rate
APR can help you compare credit products, but the total repayment shows the real cost in pounds. A proper comparison should use both.