What Is APR? Understanding Annual Percentage Rate
APR (Annual Percentage Rate) is the total cost of borrowing expressed as a yearly percentage. Unlike a simple interest rate, APR includes fees and charges, making it easier to compare products fairly. Lenders are legally required to show the APR.
For credit cards, the APR is typically variable and applies to the outstanding balance if you do not pay in full each month. If you clear your balance every month, the APR is irrelevant — you pay zero interest. This is why credit cards can be powerful tools when used wisely.
For loans and mortgages, the APR may differ from the headline interest rate because it factors in arrangement fees, broker fees, and other costs. A loan with a lower interest rate but high fees can have a higher APR than a seemingly more expensive loan with no fees. Always compare APR, not headline rates.
Frequently Asked Questions
What is representative APR?
Lenders must offer the advertised representative APR to at least 51% of successful applicants. The other 49% may receive a higher rate based on their credit profile.
Is 0% APR really free?
During the 0% period, yes — no interest accrues. But always check what the rate reverts to and ensure you can repay the balance before the promotional period ends.
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