Ruth Emery
By Ruth Emery
Financial Journalist
Updated 30 May 2024
|Read time: 5 mins

APR: What is it and how does it work?

When you’re looking at taking out a credit card, you’ll usually see the letters: “APR” - this stands for “annual percentage rate of charge”.

You may also spot an APR alongside personal loans and car finance. Put simply, an APR is the assumed cost of borrowing money over a year, considering interest and other charges like an annual fee. It’s a rate used to help customers understand how much borrowing money will cost them and which can be used to compare the product against others before they complete their application.

All lenders must tell you what APR you are being offered before you sign up to the product.

What does APR mean?

APR might sound like some rather technical jargon, but it’s actually quite straightforward.

In the context of a credit card, the APR gives you an idea of how much your borrowing will cost over 12 months, as a percentage of the money borrowed.

The higher the number, the more expensive it’ll generally be for you to borrow on that credit card. The lower it is, the cheaper it’ll be for you to borrow the money. For example, a credit card with an APR of 27.9% should be cheaper than one with a 31.9% APR.

Bear in mind that the APR is based on a number of assumptions, and there are a few other factors to bear in mind, as we’ll discuss later.

As financial providers have to display an APR – and calculate it in the same way – it makes it easier for customers to compare products and work out which is the best deal for them.

How does the APR work?

To explain how APRs work, we’ll look into some examples.

Here are a couple of calculations showing how two credit cards with the same interest rate actually have different APRs:

Credit card A: standard purchase interest rate 18.9% + annual card fee £0 = 18.9% APR

Credit card B: standard purchase interest rate 18.9% + annual card fee £150 = 31.5% APR

It’s important to note that the APR is different to an interest rate. The APR usually takes the highest, most utilised interest rate on the account (which is usually the rate that is applied when you make purchases) and adds on extra charges, like an application fee or annual card fee.

What is a representative APR?

You will see a representative APR in a credit card or loan promotion. The APR you will be offered will depend on the lender’s assessment of your application. Before you begin an application, the lender presents an APR which is representative.

This is the rate at or below which at least 51% of those accepted for the credit will get. That could mean that almost half the customers who are approved for the product may not be eligible for the representative APR, and will be offered a higher rate.

The representative APR is based on several assumptions. The assumptions that apply will depend on the type of product and can vary from lender to lender.

What is a personal APR?

The personal APR is the rate you’re given when you take out the credit card. This could be the same as the representative APR, or it could be lower or higher. The lender will usually decide what rate to offer you based on your credit score, financial history and other information you provide as part of your application.

Many credit card issuers provide an eligibility check that helps customers find out what APR they are likely to be accepted for. 

What is not included in the APR?

When thinking about what the APR means, you need to consider what it does and doesn’t include. We’ve explained that it includes the interest rate, and also any annual fees and application charges, if applicable. These are compulsory charges.

There may be other fees that are not compulsory but may apply, depending on how you use the credit card. The APR does not cover any late payment or over limit fees. It also doesn't consider different rates or fees that might apply if you use the card for cash withdrawals or a balance transfer.

The APR is one factor to consider when comparing and choosing a credit card. You’ll also want to look at other features, such as whether there’s an introductory offer, and whether you can earn cashback or reward points.

Find our more about our Partnership Credit Card

If you’re interested in applying for the Partnership Credit Card we’ll perform a soft search to check your eligibility. This means it won’t impact your credit score.

Credit subject to status. 18s and over. UK residents. T&Cs apply. John Lewis plc is a credit broker and not a lender.

Content correct at time of writing 03/08/23. 

John Lewis Finance is not responsible for content contained on external websites. This article is for promotional or information purposes only. You must not rely on it as advice. Please contact a financial adviser if you need advice before you buy a financial product or service.


We break down everything you need to know about credit checks.

Learn about what you may need to do to build a positive credit history.

Find out how to use a credit card and when interest, other charges and fees apply.

John Lewis plc is a credit broker and not a lender, introducing the Partnership Credit Card under exclusive arrangements with the lender NewDay Ltd.
John Lewis Finance is a trading name of John Lewis plc, registered in England with company number 233462, registered office: 171 Victoria Street, London SW1E 5NN. Authorised and regulated by the Financial Conduct Authority (FRN 724309). Credit is provided by NewDay Ltd, a company registered in England and Wales with registered number 7297722, registered office: 7 Handyside Street, London, N1C 4DA. NewDay Ltd is authorised and regulated by the Financial Conduct Authority with number 690292 and is also authorised by the Financial Conduct Authority under the Payment Services Regulations 2017 (Ref no: 555318) for the provision of payment services.

Copyright © John Lewis Partnership
Back to top