Borrowing and credit
What is APR?
Acronym: APR
Quick definition: APR is a standard annual measure of the cost of borrowing that includes interest and certain compulsory charges to help compare credit products.
At a glance
- APR stands for Annual Percentage Rate.
- It is used for many loans, credit cards and other credit products.
- It can include certain fees as well as interest.
- The advertised representative APR may not be the rate every applicant receives.
Explain it simply
APR helps show the yearly cost of borrowing. It includes the interest rate and some required charges, so it can be more useful than looking at interest alone. If you compare two loans, the APR can help you see which one may cost more overall. It is still important to read the full terms because the amount borrowed, repayment period, fees and whether you are accepted for the advertised rate all affect the real cost.
Student explanation
Annual Percentage Rate is used in UK credit advertising and agreements to help consumers compare borrowing costs. It expresses the cost over a year and includes interest plus certain compulsory charges. APR is useful, but it is not perfect. A representative APR in advertising only has to be offered to a proportion of accepted applicants under current rules, and different borrowing patterns can change the cost for products such as credit cards. Students should distinguish APR from EAR, which is commonly used for overdrafts.
Professional explanation
Annual Percentage Rate is a regulatory disclosure measure designed to express the annual cost of credit, incorporating interest and relevant charges according to prescribed calculation rules. It supports comparability across consumer credit products but depends on assumptions about drawdown, repayment and product use. Representative APR, personalised APR and actual total amount payable can differ. APR is central to credit marketing, pre-contract information, affordability understanding and customer outcomes, but it should not be used as the only decision metric. It is distinct from nominal interest rates, equivalent annual rate for overdrafts and annual equivalent rate for savings.
UK example
A personal loan advert shows a representative APR so borrowers can compare the annual cost with another lender's loan offer.
Why it matters
APR helps borrowers compare credit costs more fairly than interest alone, but it still needs to be read alongside the full agreement.
Common misunderstanding
APR is not always the exact rate every customer will pay; eligibility, product use and fees can change the actual cost.