What is APR?

APR stands for Annual Percentage Rate, but what is it? Read on to find out.

Your guide to APR

APR gives you an estimate of how much your borrowing will cost over the course of a year, shown as a percentage. In simple terms:

  • The higher it is, the more expensive it is to borrow.
  • The lower it is, the cheaper it’ll be.

What’s the difference between interest and APR?
Interest rates may only account for one cost of having and using a credit card. The APR includes other standard fees, meaning it gives you a more complete picture of your overall borrowing costs.

 

For a quick summary, watch our short video

Watch our video for a simple explanation of what an APR (Annual Percentage Rate) is.
  • APR stands for Annual Percentage Rate. APR tells you how much your borrowing will cost you over the year as a percentage of the money borrowed. The higher your APR, the more expensive it’ll be for you to borrow. The lower it is, the less expensive it’ll be for you to borrow.

    APR includes the interest you’ll pay on your borrowing as well as other fees you’re expected to pay – like any application fees or standard card fees. But it doesn’t include extra charges, such as fees for cash withdrawals or late payments.

    When APR is “Representative”, this means it’s the rate that most people will receive. This rate isn’t guaranteed for everyone, but it can help you compare different cards from different providers. Representative APR calculations follow a series of assumptions, which we can show you now.

    In this Representative APR example, Kirsty gets a new credit card. On day 1 of using her new card, Kirsty makes a card purchase of £1,200. Over the next year, she pays it back in equal payments plus any interest charged, with no other spending.

    But depending on the credit card she chooses, the cost of this borrowing could vary.

    For example, credit card A offers her a standard purchase interest rate of 18.9%, with no annual card fee. As a result, her Representative APR is 18.9%. On the other hand, with credit card B her standard purchase interest rate would still be 18.9%, but with an annual card fee of £150. The extra fee contributes to the Representative APR of credit card B, which is higher at 31.5%. This means that using credit card B will cost Kirsty more. Although, it’s possible she may get other benefits with this card.

    Thanks to Representative APR, we can clearly see the cost differences between these two cards. But always research your options in more detail before picking a credit card that’s right for you.

    Thanks for watching. Visit www.bankofscotland.co.uk/creditcards for more information.

What APR includes

Interest

APR calculations are usually based on your card purchase interest rate.

+

Fees

Annual or application fees are included in the APR calculation you see.

=

APR

This is your estimated cost of borrowing, or Annual percentage Rate.

What APR doesn’t include

The APR only includes standard account fees, such as annual or application fees – not the additional fees and charges which you may incur through using your credit card on a month-to-month basis. Those include late payment fees, cash advance fees, transfer fees and so on.

APR calculations are usually based on your card purchase interest rate.

What about representative APR?

This is the interest rate that at least 51% of applicants are expected to get. To make comparisons easier, the representative APR is usually based on these assumptions:

  1. A credit limit of £1,200.
  2. Spending all £1,200 on the first day.
  3. Equal monthly repayments are made over a year.
  4. No other spending is made.

Why is the representative APR useful?


  

Most credit card providers include a representative APR, making it easier for customers to compare the differences between two or more cards. Things like annual fees may push the APR up, but you could receive additional benefits for those, so make sure you check all of the finer details carefully.

Example

Credit limit

Standard purchase interest rate (variable)

Annual fee

Representative APR

Example

Credit card A

Credit limit

£1,200

Standard purchase interest rate (variable)

18.9%

Annual fee

£0

Representative APR

18.9%

Example

Credit card B

Credit limit

£1,200

Standard purchase interest rate (variable)

18.9%

Annual fee

£150

Representative APR

31.5%

See if you’re eligible with One Check

One Check makes it easy to find and compare the Bank of Scotland credit cards you’re eligible to apply for, with no obligation and no impact on your credit score.

Fill in one short form to:

  • See a list of credit cards you’re likely to be approved for.
  • See your estimated credit limit up front.
Check your eligibility

Frequently asked APR questions

  • Representative APR gives you an estimate of the yearly cost of borrowing, including any standard fees (e.g. annual or application fees).

    The AER or Annual Effective Rate (also known as the Annual Equivalent Rate) could give you a more accurate view of the costs, as it calculates ‘compound interest’. In simple terms, that means the figure you see includes interest costs on top of any interest charged.

    That’s the main difference between APR and AER.

  • At least 51% of applicants will be offered the advertised rate, but that decision is based on an assessment of your personal circumstances. If you don’t qualify for the best rate, you may still be eligible for a credit card at a slightly higher interest rate.

    Many credit card issuers provide an eligibility check tool, helping you to narrow down your search to credit cards you are eligible to apply for. The Bank of Scotland version is called One Check.

  • The APR is useful for making quick comparisons, but you should review all of the credit card details before making any decisions. It’s important to know that the APR is usually based on the card purchase rate, so if you plan to make transfers or other types of transaction, you’ll need to compare more than just APRs.

    Also consider any fees which may apply as you use your credit card, in addition to any annual or application fees which are included in the APR calculation. Those could include things like transfer or cash advance fees, and charges for going over your credit limit or missing a payment.

    In short, the APR gives you a quick snapshot, but not the full picture.