Annual Percentage Rate (APR)
The APR is a way of expressing the cost of using a credit card. It takes into account the interest rate and any compulsory fees, and assumes that:
- you spend £1,500 on the first day you have your credit card (except where the credit limit is less than £1,500, in which case the actual credit limit is used)
- you never use the card again
- you pay it off in equal instalments over twelve months.
The APR can be used to compare the prices of different credit cards. Generally speaking, the lower the APR the less interest you will have to pay if you do not pay your bill in full.
However, the APR does NOT take into account the cost of cash advances or balance transfers. If these types of transaction are important to you the APR may not accurately reflect the cost of how you might use your card. An APR is just one of many useful pieces of information to take into account when comparing credit cards.
Credit cards are now advertised with a “Typical APR”. Usually this is the rate you will get. Some credit cards advertise a range of rates that different people may receive based upon the credit card company’s assessment of their credit worthiness. In these circumstances at least 66% of the people who apply for a credit card will be charged the “Typical APR” or less, but for some customers, the card company may offer a card at a higher APR.
The interest rate may vary over time. Your monthly statement will tell you what the current interest rate is for your card. Your credit card company must give you advance warning before increasing the cost of your card. If it reduces the cost of your card you will be notified within 30 days of the event.
