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Representative APR vs guaranteed APR

One of the best ways to compare personal loans is by looking at the annual percentage rate (APR). APR is the total cost of borrowing over a year, including the interest rate and any associated fees. But how is representative APR different from ‘guaranteed’ APR?

One of the best ways to compare personal loans is by looking at the annual percentage rate (APR). APR is the total cost of borrowing over a year, including the interest rate and any associated fees. But how is representative APR different from ‘guaranteed’ APR?

Written by
Alex Hasty
Insurance comparison and finance expert
25 FEBRUARY 2021
4 min read
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What is representative APR?

Lenders are required by law to display their products’ APR on adverts and marketing. However, they don’t have to show the exact APR you may be offered because, when it comes to applying for credit, not all borrowers are equal in the eyes of lenders.

We all have different credit scores, and some of us are deemed riskier than others by lenders. Not everyone is offered the same APR when they apply for a personal loan or other form of credit. But lenders still want to advertise their products, so a representative APR is seen as the fairest way of highlighting what customers could get.

How does representative APR work?

When you see a representative, or typical, APR advertised, it means that at least 51% of people who are accepted for the loan must be offered the headline rate. So, if you see an advert for a personal loan with a representative APR of 3.9%, more than half of successful applicants will get it at that rate.

You don’t need to be a maths genius to work out that the other 49% of those accepted, won’t get that rate. In fact, they’re likely to be offered a higher APR.

Is representative APR misleading?

The problem with advertising a representative APR is that some people assume that’s the rate they’ll automatically get, and they might apply based on that assumption. Then when the loan is agreed, they may be shocked to find that the rate isn’t what they expected.

In particular, those with a poor credit history might be offered a much higher APR than the representative rate, which can make paying off the loan more difficult to manage.

While representative APR is a useful benchmark for comparing loans, it’s important to be aware that it doesn’t reflect the rate that everyone will get.

Find out more in our guide to what APR means.

What is guaranteed APR?

Guaranteed APR is the interest rate you’ll actually have to pay if you take out the loan. It’s also sometimes referred to as ‘real’ APR or ‘exact’ APR. So, for example, if you apply for a personal loan that has a guaranteed rate of 7.5%, that’s the rate you’ll get.

Being approved for a loan with guaranteed APR is usually dependent on your current financial situation, credit history and how much of a risk the lender thinks you are.

The better your credit score is, the more financially stable you appear to a lender. This means you’re more likely to be accepted for a loan with the lowest APR.

Guaranteed APR can sometimes be higher than you’d see with representative APR, but it should give you an accurate reflection of the total amount you’ll pay back as it’s not an advertising rate. Knowing the rate you’ll be charged can help you budget your repayments more effectively.

How can you find out your guaranteed APR?

Usually, you won’t know the real APR you’ll get until after you’ve made a full application for a loan. If you’re not happy with the rate you’re offered, you might try applying for a different loan instead. But making multiple applications for credit could harm your credit score. That’s why it’s worth finding out which loans you might be accepted for before you put in a formal application.

When you compare personal loans with us, our online eligibility checker will give you an idea of how likely you are to be accepted by the lender. If you see guaranteed APR, it means the rate you see is the rate you’d get should you then successfully apply.

How does an eligibility checker work when looking for a loan?

If you’re thinking of applying for a personal loan, our eligibility checker could help you find the right deal and reduce your chances of being rejected. Once you’ve provided us with a few personal details, we’ll find your credit file and match it against a panel of loan providers’ lending criteria.

We’ll only perform a soft credit check, so it won’t harm your credit score. You’ll be able to see the eligibility check on your credit file, but the lender won’t.

If you receive an eligibility score of 100% (or pre-approved), then subject to fraud checks, money laundering checks, and other legal checks you can be certain you’ll be accepted for the loan and guaranteed the APR shown – provided the information you’ve given is correct.

A score over 90% also means you have an excellent chance of being approved. However, the lender always has the final say.

The content written in this article is for information purposes only and should not be taken as financial advice. If you require support on the products discussed here, please speak to your bank/lender or seek the advice of an independent professional financial advisor. We also have more information on our Customer Support Hub.

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