What APR measures
APR stands for Annual Percentage Rate. It shows the yearly cost of borrowing as a percentage, including interest and any compulsory fees, such as an arrangement fee. Because it bundles both together, it lets you compare loans with different fee structures on a like-for-like basis.
Representative APR versus your rate
Adverts must show a representative APR. This is the rate that at least 51% of people who take out the product are expected to receive. You might be offered that rate, or a higher one, depending on your credit history and circumstances.
That is why a soft-search eligibility check is useful: it shows you a personalised rate before you apply.
Why the total amount repayable matters more
A lower APR over a longer term can still cost more in total than a higher APR over a shorter term. Always look at three numbers together:
- The monthly repayment
- The total amount repayable
- The term in months
APR versus monthly rates
Short-term property and asset-backed loans are usually quoted as a monthly rate, such as 0.75% per month. Multiply by twelve for a rough annual figure, but remember that fees and how interest is charged (retained, rolled up or serviced) change the real cost.
Common questions
Is a lower APR always better?
Not always. Compare the total amount repayable over the term you need, and check for early repayment charges.
Does APR include early repayment charges?
No. APR assumes you keep the loan for the full term. Early settlement charges are shown separately in your agreement.
This guide is general information, not personal financial advice. If you are worried about debt, free help is available from MoneyHelper, StepChange and Citizens Advice.
Try it: APR Calculator