What is the annual percentage rate or APR?
APR stands for Annual Percentage Rate. This is the amount of interest you pay annually on the money you borrow. When you successfully apply for a credit card, you will be notified of the APR you will need to pay.
Why is the annual percentage rate or APR important?
The APR is the annual percentage interest rate you are charged for borrowing money. All loan products must display the APR rate so that you can compare them fairly.
A high APR means you will pay a higher interest rate on the money you borrow and not pay back to your credit card.
What does APR mean?
The APR shown on a card means the interest rate you will pay. It’s not the only cost you could pay with a credit card, but it’s important.
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What is the APR on a credit card?
The APR must be announced on all loan products, credit card and mortgages.
Under industry regulations, all lenders calculate the APR in the same way. To make it easier to compare loan products, the APR takes into account additional fees and how often you pay interest.
Our reimbursement calculator tells you:
The total cost of your credit card
How much interest you will pay on the debt
How quickly you could clear the balance by changing your monthly repayment amount
How does the APR work?
The operation of the APR is best explained with an example:
If you borrow £ 1,000 from a credit card with an APR of 12% (and you don’t pay off any debt) it will cost you £ 120 in interest over a year.
The APR is usually added to your debt on a monthly basis. To find the monthly interest rate, divide the APR by 12. The monthly rate on an APR of 12% is 1%. If you owe £ 1,000 you will be charged £ 10 interest each month.
The longer the period over which you spread your repayments, the lower the monthly cost … but the higher the overall interest paid.
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What does typical or representative RPA mean?
When you compare credit cards, the APR is presented as a “typical” or “representative” APR.
Representative or typical APR refers to the rate that at least 51% of those accepted for that product will achieve.
Up to 49% of the remaining applicants may be charged a higher APR. This can of course be a bit confusing, given that you don’t know if this is the APR you will actually receive. This means that most people will receive this, but not all.
Put simply, the typical APR is a guide to the amount of interest you are likely to be charged. However, it may be higher depending on your personal financial situation and your credit rating.
Learn more about how your personal credit score or credit score affects the interest rate you will be charged. our credit scoring guide.
How can I find the best APR on loans?
To get the best APR rate, you will need to have a good credit rating.
Despite the advertised APR, you won’t know the exact APR rate you will get until you apply and are told that your application is successful.
The better your credit score, the less risk you present to a lender of defaulting and not paying back the money you borrow. Thus, lenders charge higher APR rates to customers whom they consider to be of higher risk.
Why be careful not to over-apply for credit?
Whenever you apply for credit, the loan provider performs a rigorous credit check. This leaves a mark on your credit report. There are many apps that can make you feel like you’re in dire need of credit. It is not recommended to apply for too many credit products at the same time.
In order to get the representative APR, you may need to meet certain conditions and credit score criteria. To see what you might get for your situation, always read the fine print first.
Check your credit report before applying for a loan. You may need to improve it to qualify for the best credit products. You are more likely to be offered the advertised APR if you have a good credit rating. A lower APR is a great motivation to improve your credit score.
What is a “good” or a poor APR?
0% purchase credit cards often charge around 18% to 20% of the APR after the interest-free period ends.
Anything below 18% is cheap compared to the market trend. Anything over 20% is on the expensive side.
If you pay off your balance every month, the APR won’t be as important. However, if you forget to pay and pay a high APR, interest charges will accrue.
Some store cards have higher APR rates than traditional credit cards.
Higher rates for credit cards are generally more likely for bad credit and credit cards, which can have an APR of between 24% and 50%. If you must get one of these cards, try to pay it off in full to avoid having to pay those high rates.
Premium credit cards that offer big rewards on your spending often also have high APR rates.
Where can I find low APR credit cards?
Consistently low APR cards will help keep your costs down in the long run, so they might be a good choice if you need to borrow for a year or more.
What are the other costs of credit cards?
The APR shouldn’t be the only thing you need to think about when borrowing money or choosing a credit card.
The other elements to take into account are:
Late payment fees
Your credit rating
Take a look at our video on other costs of having a credit card:
What types of credit cards are available?
Deciding which type of card is right for you depends on what you need. Check your credit score to make sure your credit report is in the best possible condition before you apply.
Use our eligibility checker to see if you are likely to get the card you want. We only perform a gentle credit check, so it won’t hurt your credit rating. Verifying your eligibility could reduce the risk of being rejected.
Why should I look for a low APR card?
Low APR credit cards are good for regular and planned borrowing and are useful cards to have in your long-term wallet.
To borrow without paying interest, consider a 0% purchase card. The 0% interest is only applicable for a limited period of time. After that, the card reverts to a relatively high APR.
Can I transfer from a high APR credit card to a low APR credit card?
If you pay a high amount of interest on existing credit card debt, you may benefit from switching to a credit card with a lower APR and interest rate.
If so, a 0% balance transfer card might help. As with 0% acquisition cards, 0% balance transfers only last for a specified period.
Is the APR still the most important aspect of a credit card?
For those who plan to use a credit card primarily for shopping and know they can pay off your entire balance each month, a rewards or cashback credit card might be a good choice. The APR is often high on these cards, but that shouldn’t matter as long as you pay off the balance every month.
How do I find a credit card if I have a bad credit history?
Anyone with a bad credit or little credit history may be better off choosing a credit card builder.
You can avoid interest charges while improving your credit rating by borrowing responsibility and paying back on time every month. Once your score improves, consider another credit card with a lower APR.
What is the difference between APR and AER?
APR and AER have completely different meanings.
AER stands for annual equivalent rate. This is the amount of interest you will earn on your savings and deposits over the course of a year.
The AER representative allows you to compare different savings products. Think of the APR as a cost (because you will be paying interest) and the APR as a saving (because you will be earning interest).