Key facts: The interest rate is the pure cost of borrowing the money. The APR adds compulsory fees and expresses the true yearly cost — the number built for comparisons. A representative APR only has to be offered to 51% of accepted applicants; your personal APR can be higher. Mortgages use APRC, the whole-term equivalent.
What the interest rate is
The percentage charged on the balance you owe — the raw price of the money. It says nothing about arrangement fees, and quoted alone it can flatter a product: a loan at a lower rate with a hefty fee can cost more than a higher-rate, fee-free rival. That gap is exactly what APR exists to close.
What APR adds
Annual Percentage Rate folds compulsory charges — arrangement and annual fees — into a single standardised yearly cost, calculated the same way by every lender by law. Comparing APRs is comparing like with like. What APR excludes: optional extras, penalty charges, and (on mortgages) costs that depend on your behaviour — which is why mortgages carry the stricter APRC, spreading all costs across the full term.
The "representative" catch
Advertised APRs are representative: at least 51% of accepted applicants must get that rate or better — meaning up to 49% are quoted worse, sometimes substantially, based on their credit profile. The advertised number is the shop window, not your quote. Soft-search eligibility checks reveal your personal APR before you commit — the only number that should drive your decision.
Using APR properly
APR is sharpest comparing similar products over similar terms — two 5-year unsecured loans, two credit cards. It's cruder across product types: a credit card's APR assumes revolving behaviour, a loan's assumes fixed repayment, and short-term products can show wild APRs that misstate small absolute costs (and vice versa — a modest-APR long loan can cost plenty in pounds). For real decisions, check APR and the total amount repayable. Our borrowing comparison guide puts the main products side by side.
Getting your real number
A broker's soft-search tools surface personal APRs across lenders at once — the comparison that actually matters. Find a loan broker through Nesto — free, no obligation.
Frequently asked questions
Why is my APR higher than advertised?
Advertised rates are representative — only 51% of accepted applicants must receive them. Your rate reflects your credit profile.
Is a lower APR always cheaper?
Over the same amount and term, yes. Across different terms, check the total amount repayable too — longer terms accrue more interest at any APR.
What's APRC on mortgages?
The whole-term version of APR, spreading fees across the full mortgage — built for comparing deals with different fee/rate structures.
Does 0% APR really mean free?
Within the promotional window and its terms, yes — the costs live in transfer fees, expiry rates and missed-payment clauses, so read those first.