APR vs the interest rate — what’s the difference?
The short answer
The interest rate prices the money borrowed. APR annualises the interest and compulsory charges into one comparison percentage. For UK advertising, a representative APR is not a promise of your rate: your lender can offer a different rate after assessing you. Compare APR, total repayable and the term together.
UK loan adverts often show an interest rate and a representative APR. They are related, but they answer different questions. Treating them as interchangeable can make a loan with compulsory charges look cheaper than it is.
Interest rate: the charge for the borrowed balance
The nominal interest rate describes the interest charged on the money you owe. It does not, by itself, give you the cash cost over your chosen term and may not include compulsory fees.
APR: a standardised annual comparison rate
APR combines interest with compulsory credit charges and expresses the result as an annual percentage. “Representative” describes an advertising rule, not an individual guarantee. MoneyHelper explains that only 51% of successful applicants need to receive the advertised rate or better, so some accepted borrowers may pay substantially more.
Why a lower monthly payment may still cost more
Spreading repayment over longer can reduce the monthly bill while increasing the number of months charged interest. That is why APR alone is not enough: compare the term and pounds repaid as well.
Questions people ask
Is the representative APR the rate I will get?
No. It is an advertising comparison rate. Your offered rate depends on the lender’s assessment, the amount and term, and your circumstances. Read the personalised pre-contract figures before agreeing.
Does APR include every possible charge?
It is designed to include compulsory credit charges, but optional products and charges triggered by later events may not be reflected in the same way. Check the agreement and total amount repayable.
Sources and fact-check date
Reviewed for source accuracy and plain-language clarity. Not reviewed by a named regulated financial adviser; this is general information, not personalised advice.
- FCA reviewing whether APRs support consumers’ choices — Financial Conduct Authority; accessed .
- How to apply to borrow money, like a credit card or loan — MoneyHelper; accessed .
Need a term explained?
