It’s often in the small print of those daytime TV financial TV ad. You’re offered a way out of a busted boiler, a smoking washing machine or some other crisis. And the loan comes with a 1284%

APR Representative.

But what does that actually mean.

Let’s very briefly discuss the basics of borrowing and lending.

Money makes money in the form of interest. So when a lender loans you money their money can’t make money. Effectively loaning you the money costs them money (in the form of not getting interest or by not having it to invest in other money-earning opportunities).

As a borrower you are charged money to borrow their money so they are not out of pocket.

But also… if you have a poor or thin credit history you pose a greater risk that the lender won’t get their money back. Thus the interest on a guarantor loan, for example, might be higher, to account for the extra risk of losing it.

The interest amount that you’ll pay back on top of the loan is usually given as a percentage figure called the APR. The Annual Percentage Rate.

What is the Annual Percentage Rate?

If you take out a £100 loan with a 0% interest rate you would pay back the £100. There is no interest added. But if your loan comes with a 20% interest rate it costs you £20 (20% of £100 is £20) to borrow that £100. You pay back £120.

The APR will (and must) include any interest charged for borrowing the money and any application fees that are included.

The APR is a number that gives you the overall cost of borrowing over the term you want. The APR must be shown by a lender before anything is signed as it gives you an opportunity to compare one lender’s rates against another’s.

Be warned though. Those extra charges add up, so that 20% APR on your £100 plus a £10 administration fee means your APR is actually 22%. These are small figures, but if you think that a loan is likely to be in the hundreds or even thousands, those few extra percentages really add up.

APR Representative and APR Flat Rate

Distinguishing between the two is very important.

With an APR Representative you are paying the percentage on what’s left of the debt. So as the debt goes down you are paying the same interest percentage, but less money because the debt is being paid off.

With a Flat Rate you are paying the same interest percentage based on what you initially borrowed. So each year the amount of interest you pay will always remain the same, regardless of how much you pay off.

When is 10% APR Representative not 10% APR Representative?

If you see an advertised APR then you may or may not get that.


Credit Cards companies use the APR figure as a sales tool to advertise their business. But only 51% of people will be given that rate. The other 49% of people who apply for the card will be given a different rate. And as this is the business of money that rate will probably be higher. The company may also increase the rate if they think you are a higher risk.

Don’t Confuse APR with AER

APR as we have seen is the rate of interest charged on debt. AER, or Annual Equivalent Rate, is the amount of interest charged on savings accounts.

When comparing offers make sure you’re looking at equivalent terms and only using like for like to work out what you’ll be paying.

Final Thoughts

In the UK, you have a 14-day cooling off period with any financial agreement. If you take a loan or card deal, and you decide it’s not for you there is the option to cancel. Don’t be afraid to ask questions and always fully understand what is expected of you when signing for any credit agreement. It’s always worth exploring if there are any other options before you take that step too. For example a credit card might provide a better deal than a finance deal.

You can’t do much to change interest rates. But you can look at the ways you are spending your money. Look at reducing spending on store cards, credit cards or switching them over to better deals where you can.