A guide to credit card APR
If you’ve ever applied for a credit card, or another financial product, you’ll almost certainly have seen the term APR. Here’s what you need to know about credit card APR, including what representative APR means.
If you’ve ever applied for a credit card, or another financial product, you’ll almost certainly have seen the term APR. Here’s what you need to know about credit card APR, including what representative APR means.
What is APR on a credit card?
The APR – or annual percentage rate – is what your credit card borrowing will cost you over a year, shown as a percentage of the amount borrowed.
It’s calculated by taking into account the rate of interest, along with any other standard charges, like an annual fee. All lenders have to tell customers the APR based on an assumed credit limit of £1,200.
Credit card APR can be very helpful when comparing deals because you can work out the cost of credit from different providers and potentially find a good credit card APR that suits your needs.
But while APR is good for making comparisons, the first thing to consider when you’re looking to borrow is whether it’s a smart financial decision based on your circumstances.
How does APR work on credit cards?
Credit card APR is designed to give you a clearer understanding of how much you’ll repay overall when you borrow money. Even so, the actual figure depends on how and when you pay off your debt.
Credit cards have flexible payments and your provider will usually calculate interest monthly, so it’s best just to use the APR as a rough guide.
For most cards, you can avoid paying interest altogether if you clear your balance in full each month by the due date. If you don’t, you’ll have to pay interest on your purchases (unless you’re on a 0% promotional deal).
How to work out APR on a credit card
Let’s say your credit card has an APR of 20%. If you borrow £1,000 and don’t pay any of it back, it will cost you £200 in interest over the course of a year. To find the monthly interest rate, you simply divide the APR by 12.
This is a very basic example to show you how APR works in principle. In reality, it’s a little more complicated because of compound interest, other fees and how much of the debt is outstanding.
What is representative APR on a credit card?
Representative APR is an example of the rate you could get. Lenders can’t tell you your exact credit card APR until you apply.
To advertise the representative rate, the lender needs to offer it to at least 51% of customers who successfully apply. Other customers could be charged a higher rate, assuming they’re offered one at all.
In the eyes of a lender, not everyone applying for credit has the same chance of managing their credit effectively. Having a good credit rating means you’re more likely to get the representative APR.
What’s not included in representative credit card APR?
The representative APR is based on using the card for purchases. It doesn’t take into account other rates and fees that might apply if you use the card in different ways, like for balance transfers or cash withdrawals.
It also only includes compulsory charges you’ll have to pay back. It doesn’t include fees or charges for late payments, going over your credit limit or returned payments, for example.
Why could a rate of interest vary from what I actually pay back?
Interest is charged on the interest from the previous month. This is called compound interest and will affect what you pay back.
It can make a big difference – especially when it comes to borrowing larger sums over a long period of time.
Use our credit card repayment calculator to see how much you could save on interest if you make more than the minimum repayment.
What else do I need to know about credit card APR?
While representative APR helps you compare cards, the rate you see might not match what a card actually costs you. That will depend on how you use the card and how much you can repay each month.
Representative credit card APR assumes that you spend the full £1,200 on the first day, then don’t spend anything else on the card.
Credit card providers will often try to tempt you in with rewards credit cards or cashback cards. You should be honest with yourself about whether these are going to work for you in the long run.
You might be better going for a credit card offering a more competitive APR rate or another type of benefit.
To avoid any surprises when it comes to charges, it’s important to read the terms and conditions of your credit card with care.
What our expert says...
“It's vital to know the APR on your credit card, as that’s the interest you pay. If you're on a promotional 0% interest rate, make sure you put a reminder in your diary before the 0% ends. This is so you can consider applying for a 0% balance transfer card, if you can't clear your balance. Otherwise, you'd end up paying standard interest.
If you are paying interest, have a think whether you can afford to pay your card off in full each month to avoid such charges. If that's the case, check out a cashback or rewards card as some pay you to spend.
If you can't afford to pay it all off, check if you can save with a balance transfer credit card. Note that APRs can go up and down, so watch out for communication from your card provider. But always beware scammers pretending to be your card firm. If they ask for sensitive info or for you to click a link from an email or text, that's a fraud red flag.”
- Guy Anker, Personal finance and insurance expert
Where can I compare credit cards?
Here at Compare the Market, we let you compare credit cards quickly and easily with our eligibility checker, without impacting your credit score. The results can help you to avoid applying for credit cards you’re likely to be turned down for. You can also filter your choices by card type.
Compare the Market Limited acts as a credit broker, not a lender. To apply you must be a UK resident and aged 18 or over. Credit is subject to status and eligibility.
Frequently asked questions
What is the average credit card APR?
The average APR on a credit card stands at 21.55% in the UK, as of February 2024, according to the Bank of England. But remember, the rate you’re actually charged may be much lower or higher than, this depending on your credit score, the type of card you’re applying for and current interest rates.
What is a good APR for a credit card?
To get a good APR, you’ll usually need a good credit score. Standard credit cards typically charge around 20-22% APR. However, you can get credit cards that won’t charge you any interest for a certain length of time.
0% purchase and balance transfer credit cards offer interest-free periods of 3-30 months. Once the 0% interest period ends, you’ll usually be automatically moved on to the much higher standard variable rate of interest, so it’s a good idea to pay off the card before then.
What is a high APR for a credit card?
A high credit card APR is generally considered anything over 30%. The effective interest rate (the actual interest paid) on interest-bearing credit cards was 21.55% in February 2024, according to the Bank of England. That works as a good average rate of credit card interest to compare.
Credit builder cards, designed for people with poor credit scores, have some of the highest rates, typically around 30%+ APR. Premium rewards credit cards that offer big earnings every time you spend also tend to have high APR rates because of their perks.
If you have either of these types of card, always do your utmost to pay off the balance in full each month to avoid being hit with the high rate of interest.
What is personal APR?
Personal APR is the rate you’re offered after you’ve applied for a credit card. It’s based on your personal circumstances and influenced by your credit score, salary and household finances. It might be the same as the representative credit card APR you saw advertised, but it could be higher.
What is variable APR?
Variable APRs are commonly used for credit cards. This means the APR may change over time because the rate isn’t set in stone. While there are several reasons why variable APRs change, many track the Bank of England interest rate and go up or down accordingly.
Is APR the most important credit card feature?
This depends on how you use your card and if you pay back in full every month or not. While the APR is one of the main things to consider, other features might also be important. For example, if you use your card to shop a lot, a rewards card or cashback credit card could be useful. Although the APR is often high on these types of cards, this won’t matter if you clear your balance each month.
How can I lower my credit card APR?
To lower your credit card APR, consider moving to a low APR or 0% credit card deal.
A good credit score can help you get the APR you’re looking for. See how to build your credit score.
Looking for a credit card?
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