What is APR?
APR stands for annual percentage rate. It shows the total cost of borrowing money with an unsecured personal loan over a year, including the interest and standard fees you’ll have to pay.
If you’re looking to take out a personal loan, lenders must tell you the APR you’ll be charged. This lets you compare loans more easily.
How is APR calculated?
The APR is calculated by adding the interest charges to any compulsory fees, then spreading these costs over the length of the loan. This gives a percentage that represents the annual cost of borrowing.
Your monthly payments stay the same throughout the loan term, but the way each payment is split changes over time.
In the early months, a larger portion goes toward paying off the interest, while a smaller portion reduces the loan balance.
As your loan repayments progress, more of each payment goes towards paying off the balance – and less towards the interest.
What’s included in APR?
The interest rate: lenders should tell you this when you receive a loan offer.
Compulsory charges: these can vary among lenders, but typically include arrangement fees or administrative charges.
What’s not included in APR?
Late payment fees: these are the charges for missing a monthly payment.
Optional cover: a fee you might pay for extras, such as payment protection.
What’s the difference between APR and interest rate?
The interest rate is the cost of borrowing money, expressed as a percentage of the total loan amount. The higher the interest rate, the more your loan will cost you.
APR includes both the interest and any additional fees for the loan. The APR is often higher than the interest rate as it includes all compulsory costs and fees.
Representative APR vs personal APR
When you compare loans, you’ll see the representative APR advertised by lenders. Here’s how this rate differs to a personal APR:
Representative APR
This is the rate you'll usually see advertised by lenders. They have to offer the representative APR or better to at least 51% of applicants.
It’s not guaranteed: up to 49% of applicants could be offered a higher APR, meaning the loan might cost you more than you'd assume based on the representative APR alone.
The representative APR will change depending on the loan amount. A general rule of thumb is that the bigger the loan is, the lower the representative APR will be.
Personal APR
This is the rate you’re actually offered and is based on your personal circumstances. It could be the same as the representative APR, lower or higher.
Your personal APR will take into account your credit history, your income and outgoings, plus the amount you want to borrow and over how long.
Different lenders could offer you different personal APRs.
Fixed APR vs variable APR
With a fixed APR, the rate stays the same throughout the loan term.
By comparison, a variable APR can go up or down. The rate can change based on market conditions, often reflecting changes to the Bank of England’s base rate.
How to get a low APR loan
To get a loan at the lowest APR, you’ll need a healthy credit history. If you have a poor credit score or no credit history at all, you’re likely to be charged a higher APR.
You can check your credit score for free with the three main credit reference agencies:
Equifax
Experian
TransUnion.
It’s also worth noting that lenders must be sure that a customer can afford the loan, regardless of their credit score, before their loan application is approved. They may also consider what other debt you have and how much of your available credit –your credit utilisation ratio – you're using.
The amount you borrow
In general, the more you borrow, the lower the APR is likely to be. Compare these two illustrative examples below (not based on actual market rates):
Initial loan | APR | Total repayment |
|---|---|---|
£5,000 over 5 years | 7.2% | £5,936.40 |
£10,000 over 5 years | 6% | £11,555.40 |
But don’t be tempted by lower rates to take on more than you can manage. You should only ever borrow what you can comfortably afford to pay back.
What is APRC?
APRC, or annual percentage rate of charge, is used for mortgages and secured loans. It includes:
The interest rate, including any initial fixed or discounted rates, and the standard variable rate (SVR) you’ll move onto
Fees, such as the valuation fee, broker fee, arrangement fee and early repayment charges.
Find out more in our guide to APRCs.
Finding the best loan for you
Compare loans with us and we’ll show you which ones you’re most likely to be accepted for, without any impact on your credit score. You’ll be able to see the APR for each loan, along with the monthly repayment.
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.
FAQs
Can I get a low APR loan with bad credit?
If you have a poor credit rating, it’s unlikely you’ll be accepted for a loan with a low APR. But that doesn’t make it impossible for you to find a loan.
Bad credit loans are for those with a low credit score or no credit history at all. But they usually have higher interest rates and often restrict how much you can borrow and for how long.
How do I find out my personal loan rate?
Our loan eligibility checker shows you which loans you’re most likely to qualify for, along with the potential interest rate, before you apply. It’s a soft credit search, so it won’t affect your credit score in any way.
What’s the different between representative APRs and guaranteed APRs?
A guaranteed APR may be higher than the representative APR, but it gives a clearer picture of what you’ll pay if your loan application is approved.
Representative APR is the rate advertised for a loan or credit product. At least 51% of approved applicants must receive this rate or better. The rest may pay more.
Guaranteed APR means the rate you see is the rate you’ll get if you’re approved. For example, if you successfully apply for a personal loan with a guaranteed rate of 6.5%, that’s the rate you’ll definitely receive.
Find out more on representative APR vs guaranteed APR.
Looking for something else?
As well as writing for Churchill and Privilege insurance websites, Karen’s CV includes working with M&S, Debenhams, Tesco, Sainsbury’s and John Lewis. With over 20 years of editorial experience for big household names she leads a talented content team with a focus on simplifying personal finance for everybody.
Ele Clark is an award-winning editor who has held leadership roles at Which? and news-stand publications in London and Dubai. She’s appeared across the press and media, including BBC’s Panorama. With almost 20 years’ experience in personal finance, insurance and consumer journalism, she leads a talented team at Compare the Market, creating insightful, accessible content to help people make informed financial decisions.
Sajni is passionate about finding money products to help you make great financial decisions. She keeps track of the latest trends and evolving markets to find new ways to help you save money.
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What our expert says...
"APR is useful because it pulls borrowing costs (e.g. interest, fees) into one clearer number, rather than leaving people to focus only on the monthly payment. That can make it easier to compare like-for-like and spot when a deal looks simple on the surface but costs more in practice."