APR (Annual Percentage Rate)
Plain-English definition of APR (Annual Percentage Rate) — part of our borrowing glossary.
Definition
APR is the yearly cost of borrowing, expressed as a percentage of the amount borrowed, including most fees. A 20% APR on a £1,000 balance implies around £200 in interest over a year if the balance is unchanged. APR compounds monthly on most credit cards, so the effective yearly rate is slightly higher than the headline.
Worked example
A £2,000 credit card balance at 22% APR accrues roughly £37/month in interest if untouched — £440 over a year. Paying £200/month instead of the £50 minimum clears the balance in around 11 months with roughly £220 of total interest, rather than dragging on for 5+ years.
Why it matters
Borrowing costs compound fast. A few percentage points of APR, or a few months of faster payoff, can change the total cost of a debt by thousands of pounds over its lifetime. Understanding the mechanics before you sign lets you choose the cheapest credible option rather than whatever is advertised first.
Common mistake
The most common mistake is comparing monthly payments instead of total cost. A lower monthly payment usually means a longer term and more total interest. Always compare the total amount paid over the full term, not just the headline monthly figure.
Calculators that use this concept
Go deeper
See also
- Debt Avalanche Method — A debt payoff strategy where minimum payments are made on all debts, and every spare pound is directed at the …
- Debt Snowball Method — A debt payoff strategy where minimum payments are made on all debts, and every spare pound is directed at the …
- Balance Transfer — Moving a credit card balance to a new card — typically with a promotional 0% APR window of 12–30 months and a …
- AER (Annual Equivalent Rate) — AER is the savings equivalent of APR — the rate of interest you earn on a savings account assuming interest is…
- SDLT (Stamp Duty Land Tax) — Stamp Duty Land Tax is the UK tax on residential and commercial property purchases in England and Northern Ire…