TL;DR
- APR (Annual Percentage Rate) shows the total annual cost of borrowing including interest and mandatory fees.
- All UK lenders must display APR on loans, credit cards, and mortgages under FCA rules.
- Representative APR is offered to at least 51% of approved applicants. You may pay more.
- Lower APR means cheaper borrowing. But total repayable amount matters too.
- APR for borrowing. AER for saving. Never confuse them.
Key Facts
What Is APR?
APR stands for Annual Percentage Rate. It is the standard measure of borrowing costs in the UK, used to express the total annual cost of a loan, credit card, mortgage, or other credit product as a single percentage. APR includes the interest rate plus any mandatory charges and fees. Under the Consumer Credit Act 1974 and FCA rules, all UK lenders must display the APR in credit agreements and advertising. APR was designed so that consumers can compare any two credit products on an equal basis, regardless of how fees and interest are structured.
Representative APR vs Personal APR
Representative APR is the rate that at least 51% of successful applicants for a product receive. It is the rate lenders are required to display in advertising under FCA rules. Up to 49% of approved applicants may receive a higher APR based on their credit profile, income, or other risk factors. This means the representative APR is a marketing headline, not a guaranteed offer.
When you apply for a credit product, the lender assesses your creditworthiness and may offer a different rate from the representative APR. Use eligibility checkers that run a soft search (no credit score impact) before applying formally to get an indication of the rate you are likely to be offered. Only a formal application triggers a hard search visible on your credit file.
How APR Is Calculated
APR is calculated by taking the total interest charges plus all mandatory fees over the loan term, expressing them as a percentage of the loan amount, and annualising the figure. For a loan with no fees, APR equals the annual interest rate. For a loan with an arrangement fee, the fee is added to the total interest and APR rises above the headline rate. The calculation assumes the loan runs to its full contractual term with all payments made on schedule. Early repayment changes the actual cost but the APR always reflects the full-term basis.
APR on Credit Cards
Standard credit card purchase APRs in June 2026 range from approximately 20% to 35% for mainstream products. Many credit cards offer 0% introductory periods on purchases or balance transfers. The APR shown for these cards reflects the reversion rate after the promotional period, which is why a 0% card may show a high APR. Once the 0% period ends, the standard APR applies to the remaining balance.
Balance transfer cards allow existing credit card debt to be moved at 0% for an introductory period, typically 12 to 30 months, with a balance transfer fee of 1% to 3% of the amount moved. If the full balance is cleared within the 0% period, no interest is paid. If not, the standard APR applies to whatever remains.
APR on Personal Loans
Personal loan APRs in June 2026 start at approximately 6.5% to 8.0% for borrowers with good to excellent credit on loans of 7,500 to 25,000 pounds. Rates rise for smaller amounts, shorter terms, and weaker credit profiles. Lenders typically offer better APRs on larger amounts because fixed administration costs are spread across a larger balance.
Total repayable amount is a more useful comparison than APR alone when loan amounts or terms differ. A 10,000 pound loan at 7.9% APR over 5 years costs approximately 2,132 pounds in interest. The same amount at 12% APR over 3 years costs approximately 1,960 pounds in total interest despite the higher rate, because the shorter term limits total interest accrual.
APR on Mortgages
Mortgage APR includes the interest rate plus the arrangement fee amortised over the term. A 2-year fixed mortgage at 4.5% with a 1,500 pound arrangement fee will show an APR slightly above 4.5%, because the fee adds to the total borrowing cost. For borrowers who remortgage every 2 to 3 years, the APR is less meaningful because the fee has a larger proportional impact over the shorter period they actually hold the deal.
Overdraft EAR
Overdraft rates are expressed as EAR (Effective Annual Rate) rather than APR. EAR is the annualised cost assuming the overdraft stays constant for a full year. Following FCA rules from 2020, most UK bank overdrafts charge a standard EAR of 39.9%, a single transparent rate that replaced the complex charging structures that previously made overdraft costs very difficult to compare.
Frequently Asked Questions
What does APR mean?
Annual Percentage Rate. It shows the total annual cost of borrowing as a percentage, including interest and mandatory fees. All UK lenders must display APR under Consumer Credit Act and FCA rules.
Why might I get a higher APR than the representative rate?
Representative APR is the rate offered to at least 51% of approved applicants. Your personal APR depends on your credit score, income, and the lender risk assessment. Up to 49% of approved applicants may receive a higher rate. Use eligibility checkers with a soft search before applying to see the likely rate without affecting your credit score.
What is the difference between APR and AER?
APR is the annual cost of borrowing (loans, credit cards, mortgages). AER is the annual return on savings (deposit accounts, ISAs). Higher AER is better for savers. Lower APR is better for borrowers.
What is a good APR for a personal loan in 2026?
For borrowers with good to excellent credit, personal loan APRs of 6.5% to 8% on amounts of 7,500 to 25,000 pounds are competitive in June 2026. APRs above 20% indicate either a smaller loan amount, shorter term, or weaker credit profile.
Is a lower APR always better?
Lower APR means lower annual cost of borrowing. But total repayable amount matters too: a lower APR over a longer term can cost more in total interest than a higher APR repaid faster. Compare both the APR and the total amount repayable over the full term.
