What Is APR? Annual Percentage Rate Explained

APR (Annual Percentage Rate) is the total cost of borrowing expressed as a yearly percentage. The key word is "total": unlike a simple interest rate, APR includes fees and charges on top of interest, which is what makes it the right number to compare when you are choosing between products. Lenders are legally required to show it.

For credit cards, the APR is typically variable and applies to your outstanding balance if you do not pay in full each month. If you clear your balance every month, the APR is entirely irrelevant to you, you pay zero interest. That is why credit cards can work in your favour, but only if you treat them as a payment tool rather than a borrowing one.

For loans and mortgages, the APR can differ significantly from the headline interest rate because it folds in arrangement fees, broker fees, and other costs. This is where people get caught out: a loan advertised at a lower interest rate than a competitor can actually cost more once fees are included. The APR corrects for that. Always compare APR, not headline rates, and do not let a "low rate" headline distract you from the true cost of borrowing.