What is a Good APR for a Credit Card in the UK?

Does it ever seem like banks and financial institutions make things complicated on purpose? If you’re new to using a credit card or you’ve just started building your credit, the term APR can be confusing. Every credit card advert boasts about their good APR, but how can you know what a good one is?

In this post, we’ll explain everything you need to know about choosing a credit card with a good APR. Plus, we’ll talk you through the basics of APR, why it matters, and how to avoid paying interest altogether. Let’s jump straight into it!

What’s the Difference Between Representative APR and Real APR?

To understand how APR is calculated, it’s important to first understand the difference between ‘representative APR’ and ‘real APR’:

Representative APR: This is the ‘example APR’ used for advertising purposes. In order to advertise a representative APR, the FCA requires at least 51% of customers to be eligible for the advertised APR rate. This means that only around one half of the applicants are actually eligible for the advertised APR. In reality, your APR could be much higher than the representative APR. For this reason be sure to read through your final offer and contract thoroughly before signing anything.

Real APR: This is the actual amount you’ll pay rather than the ‘average’ rate used for advertising purposes. It’s important to note that this rate is often different and potentially higher than the representative APR. Be sure to read your final offer letter carefully when signing for a new line of credit.

What is APR?

Annual percentage rate (APR) refers to the interest rate applied to credit card purchases. For example, let’s say you purchase something for £200 on a credit card with an APR of 20%. If you don’t repay the amount you owe for a year, you’d accumulate £40 in interest on that one purchase charge. In fact, the figure could be more if you were to take compound interest into account, but you get the point.

The lower your APR, the less interest you’ll pay on your credit card purchases.

For instance, a credit card with 15% APR is going to be cheaper to pay off than a credit card with 18% APR.

What is a Good APR for a Credit Card?

A good APR is considered to be anything that is at or below the standard rate in the UK. While this regularly changes due to fluctuations in financial markets, current APR rates in the UK are hovering around 21% on average.

Here’s a breakdown of representative APRs from popular cards in the UK as of March 2022:

So What Determines Your APR?

To recap:

Credit providers may advertise a representative APR, but that may not be the actual amount you’ll be offered or will pay.
Your credit score determines the APR you’ll actually receive. The higher your credit score, the lower your APR is likely to be.
Your payment history, outstanding debt, and credit history all play large roles in determining the APR you’ll be offered.

Does APR Matter?

Yes, APR is an important credit factor. If you carry a balance on your card, it’s important to understand how to calculate APR as it will determine how much interest you’ll pay in the long-run. Alternatively, if you pay your credit card off in full each month, you won’t be accumulating interest, so your APR won’t matter as much. It's always best to try to pay off your credit balance each month. This can help improve your credit score and financial health.

When applying for a new line of credit, bear in mind how you’re using your current cards:

If you pay your balance on-time and in full each month, you can probably afford to use a card with a higher interest rate.
If you carry a balance, and struggle with current payments, you may want to consider a card with a lower APR.

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If you have no credit or a low credit score, a credit card can help you build it. But that’s only true if you use it wisely. Fortunately, through Pave’s bill monitoring, personalised credit fixes, and payment reporting, we make it easier for you to track your bills, make payments on time, and experience the benefits of credit card use.

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