What is a credit card APR?

Credit cards and ‘APR’ go hand-in-hand. But what does this famous three-letter term actually mean, apart from ‘Annual Percentage Rate’? Put simply, credit card APR is the total cost of borrowing over a year, including interest and standard fees. But by understanding a bit more about APRs, you can find they’re a quick way to compare credit cards, as well as figure out the total cost of using one.

A man and woman in a casual office discussing credit tips

The basics of credit card interest

Aside from the money you spend on it, the main cost of using a credit card is usually the interest you’re charged on what you borrow. 

When you make a purchase, the amount you spend is added to your balance. It’s this balance that you’re charged interest on each month. So if you spend £500 in a month, you’ll be charged interest on that amount the next month (if you’re not in a 0% promotional period).

Each month you’ll have a payment due date. This will be when you have to pay back at least the minimum repayment amount that’s due. It’s after this date that you’re charged interest on any outstanding balance.   

But if you pay off your balance in full before the next payment due date, you don’t pay any interest on that balance. However, if you still owe a balance after your due date, interest is added to the amount you need to repay. 

When borrowing on a credit card, you owe the outstanding balance, plus a percentage charged on top. This percentage, called the interest rate, is set by the lender when you sign up for the card.

For example, let’s say your credit card has an interest rate of 20%. If you borrow £1,000 in January and don’t repay it until the end of the year, the cost of borrowing would be 20% of £1,000, or £200. In reality, the actual cost could be higher because of compound interest (interest charged on interest) and other charges and fees.

This is just an example to make APR easier to understand – remember that you should make regular repayments throughout the year to manage your balance. Paying your balance off each month will affect the amount of interest you pay over the year.

What’s included in a credit card’s APR?

A credit card’s APR (annual percentage rate) is the total cost of its interest rate (e.g. 20%) plus the fees every cardholder pays as standard, such as the annual fee – it’s the cost of borrowing money over a year. All other fees and charges, such as for missed repayments and cash withdrawals are excluded from the APR. 

Infographic on APR calculation

What makes APRs so useful is that they’re calculated in the same way for all cards. This means you can use them to compare what card could cost you the most if you carry a balance on it. The higher the APR, the more you’ll pay. 

It’s worth knowing that when credit card providers give an APR for one of their cards, it’s based on an assumed credit limit  Although you might not be offered the same limit when applying, using this figure across all cards makes comparing them easier. 

The APR is also based on the type of interest rate that applies to the way most people use the card. This is usually the Standard Purchase Rate, because most people use credit cards to make purchases. If you use the card in other ways, such as to transfer money or make cash withdrawals, different rates to the advertised APR could apply. 

Representative vs. personal APR

Now you know a bit about APR, you might be itching to bag the card with the lowest rate. But before you start comparing cards, it’s worth knowing the difference between representative APR and personal APR. 

Representative APR is the rate given to at least 51% of the people who are granted the card by the credit card company, while personal APR is the rate you’re offered based on your personal circumstances. When a list of different credit cards is sorted from high to low by their APRs, you’re seeing what cards have the highest and lowest rates for the majority of people who get them. The cards aren’t necessarily ordered by those that will personally give you the highest or lowest APR. 

You’ll know what APR you can get after you’ve applied. If it’s different to what you saw advertised as the representative APR, then you’ll know you’ve been given a rate based on your personal situation.

The APR you’re offered is decided by the credit card company when you apply and is based on your credit rating, how good you are at managing your money, and the amount you want to borrow. After applying for a credit card, you could find that your personal APR is higher, lower or the same as the representative APR.

Although they’re unlikely to ever come up in a pub quiz, here are a few other facts about APR worth knowing:

  • Credit cards with 0% interest periods still have APRs. Cards with an initial interest-free promotion (such as with some balance transfers) will have an APR that kicks in after a certain amount of time. Therefore, it’s best to pay off the full balance before the APR starts being applied.
  • APR is calculated on an annual basis, but it’s added to your bill once per month. APR isn’t like an annual fee that is charged once a year. The interest is added to your outstanding balance when you get your monthly credit card bill. Of course, if you repay your balance in full on time, there’s no interest to pay.
  • Most credit cards’ APRs are variable. This means the interest rate could change depending on the Bank of England Base Rate, or how you use the card, e.g. if you don’t make monthly payments on time, your APR could go up. To see how a change in the Base Rate or to your balance could affect your monthly repayments, check out the Barclaycard Interest Calculator.

Choosing a credit card with the right APR for you

As long as you pay your credit card bill in full on time each month, you won’t have to worry about how high or low your APR is, as you won’t pay any interest. Also, some cards have higher or lower APRs because they’re designed for certain uses. 

For example, credit cards designed to help build credit ratings tend to have lower credit limits and higher APRs because they’re aimed at people who don’t have a track record of making repayments. Certain rewards cards have higher APRs too, but they come with benefits, such as loyalty points and air miles, that can make the higher interest rate worth it for some people.

Barclaycard has a range of credit cards you can check out to find the best one for your needs.

Check your eligibility before applying

Finding out your personal APR is a bit like shaking a Magic 8-ball. You don’t know what rate you’ll be offered until you apply for a credit card, and because applying can be recorded in your credit history, it’s worth reading the eligibility requirements for the card before applying. You can also use our eligibility checker, which can give you an idea of whether you’re likely to be accepted. This type of ‘soft search’ isn’t recorded in your credit history and therefore won’t affect your credit rating.

Consider moving your balance to a card with 0% interest

If you already have a credit card with an APR that’s adding interest to your bill each month, you could consider moving the balance to a new card with a 0% interest promotional period.

Taking interest out of the picture for a while can make clearing the balance easier, as long as you’re confident you can pay it all off before the 0% interest period is over and APR kicks in again. You can see how much transferring a balance could save you by using our balance transfer calculator. Be sure to check if there are any transfer fees involved when you look at balance transfer card.

How a 0% interest period could make a difference to your interest payments

Here’s how the APR on a credit card could make a difference to how much you pay while clearing an outstanding balance, compared to the saving you could make if you transferred it to a card with a 0% interest period.

Imagine you have an outstanding balance of £1,200 on a credit card with 19.9% APR. If you kept the balance on that card and repaid £100 per month, it could take 1 year 2 months to clear it and cost £135 in interest payments. 

As a comparison, if the balance of £1,200 was moved to a balance transfer card with a 30-month interest-free period and a 0.5% transfer fee, and you repaid £100 each month, the balance could be cleared in 12 months, with no interest and £6 in fees.

What's next?

APR can sometimes seem like a tricky maths problem based on confusing percentages, rates and balances. Actually, it’s just about understanding the basics of interest and fees. 

Now you know all the important bits, you can start comparing credit cards on a like-for-like basis.

Find the right credit card for you