Representative APR vs guaranteed APR

What is APR on a loan?

APR, or annual percentage rate, is the total cost of your borrowing for a year. It includes the annual interest rate, as well as any fees that are payable.

What is representative APR?

Representative APR is the rate advertised on a loan or other form of credit. At least 51% of successful applicants must receive this rate or lower. The other 49% will likely have to pay a higher rate.

Lenders are required by law to show APR on their advertising. But they don’t need to show the exact APR you may be offered. A representative APR is seen as the fairest way to highlight what customers could get.

What needs to be shown in a representative APR example?

To allow you to make comparisons when borrowing, the Financial Conduct Authority (FCA) has rules on how representative APR must be calculated and shown in any advert for credit. The example should include:

• An example borrowing amount – this must be representative of loans offered. A lender shouldn’t use a figure and then, on average, only lend smaller amounts.

• A sample loan term: for example, 36 months.

• A monthly repayment amount and the total repayable, including compulsory fees.

• The annual interest rate (this can be fixed or variable).

What is a good representative APR?

A good representative APR is one that’s lower than average. In February 2024, the average rate was 8.76% for personal loans.

The APR on credit cards is typically much higher. In February 2024, the average stood at 21.55%. But many credit cards charge more than this.

Is representative APR misleading?

Representative APR can be misleading if you assume this is a guaranteed rate that you’ll get and apply for a loan based on that assumption.

Those with a poor credit history are likely to be offered a much higher APR than the representative rate. This can make it harder to pay off a loan.

Representative APR is a useful benchmark for comparing loans, but it’s important to understand that it doesn’t reflect the rate everyone will get.

Find out more in our guide to what APR means.

How to build your credit score for a better APR

Need to improve your credit rating? There are lots of ways to do it, from checking that you’re on the electoral roll to making sure your name is on household bills.

Read more on the steps you can take to help build your credit score.

What is guaranteed APR?

Guaranteed APR is the interest rate you’ll actually pay if you take out the loan. It’s sometimes referred to as ‘real’ APR or ‘exact’ APR.

If you apply for a personal loan with a guaranteed rate of 7.5%, that’s the rate you’ll get. Not all loans or credit card providers show guaranteed APR in their advertising.

Guaranteed APR can be higher than the representative APR, but it more accurately reflects how much you’ll pay if your loan application is successful.

What is representative APR vs purchase rate?

Representative APR is an advertised rate you’ll see on loans and credit card promotions.

Purchase rate is the amount you’ll be charged on credit card purchases if you don’t pay your balance in full every month.

How can you find out your guaranteed rate?

You won’t usually know the interest rate you’ll get on a loan until you apply, unless a guaranteed rate is shown in the promotion for the loan.

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

If you’re thinking of applying for a personal loan, our loan eligibility checker shows you which loans you’re likely to be accepted for. It’s a soft credit check, so won’t impact your credit score. You’ll be able to see the eligibility check on your credit file, but lenders won’t.