Interest, and what APR actually means

Most people understand interest. If you borrow £1000 for a year at an annual interest rate of 10%, then you need to repay a total of £1100. But if you had to pay a fee to get the loan or had to pay fees during the loan period then interest doesn't give you the whole picture.

APR puts the whole price of borrowing into one yearly figure

It's the interest plus any fees you have to pay, turned into one rate per year.

Interest is what you pay for using someone else's money. It's quoted by the year, but most borrowing adds it on more often than that, usually every month.

APR stands for annual percentage rate. It takes the interest, adds any fee you must pay to get the credit (an arrangement fee, say), and turns the lot into one yearly figure. That's why two loans with the same interest rate can have different APRs, and why the APR is the figure that compares like with like.

Interest is charged on interest, so a balance grows faster than it looks

Leave £1,000 on a card at 25% APR for a year, paying nothing, and you owe £1,250 (and in real life, late fees on top).

25% a year sounds like about 2% a month. It's a little less: 1.88%. Each month's interest is added to the balance, and the next month's is charged on that bigger balance. Twelve months of that comes to exactly 25%. Building that in is the whole point of an APR.

25% is the bottom of the usual advertised range for a card when a balance is carried over (the main ways to borrow has the range). The higher the rate, the bigger the effect.

The monthly payment and the total cost tell different stories

Spread a loan over longer and each payment shrinks. The total grows.

Here's the same £5,000 loan paid back over three different lengths. The rate is a round 10% APR, picked to make the sums easy. It isn't a rate anyone is promised.

Five years brings the monthly payment to less than half the two-year one. It also more than doubles the interest. Which of those matters more depends on what your month can carry, and that's yours to weigh.

"Representative" APR is the rate most people get, not everyone

A lender only has to give the advertised rate, or better, to 51% of the people it accepts.

That's all "representative" means. The other 49% can be charged more. Which side you land on depends largely on your credit history, and you often won't know your own rate until you've applied. Credit scores and your credit file explains what lenders look at.

So the rate in an advert tells you what the borrowing can cost. It doesn't tell you what it will cost you.

A 0% deal is a price for a set time

When the deal ends, the ordinary rate applies to whatever is left.

A 0% offer on a card, for spending or for a balance moved over from another card, lasts a set number of months. Anything paid off inside that time has cost nothing in interest. Anything still there on the day it ends is charged at the card's ordinary rate from then on, and that rate is usually in the range above.

Paying only the minimum on a card is mostly paying interest

The minimum keeps you up to date. It barely touches what you owe.

The rules say a credit card's minimum payment has to cover at least the month's interest, fees and charges, plus 1% of the balance. Take £1,000 on a card at 25% APR, and a minimum set at exactly that. After a year you've paid £327, £213 of it interest, and you still owe £886.

Paid at a steady £50 a month instead, the same £1,000 is gone in 26 months, and the interest comes to £266 in total.

If, over 18 months, you've paid more in interest and charges than you've paid off the balance, the card company is required to get in touch about it. The regulator calls this persistent debt. Risks and warning signs has more on why it matters.

Representative APR and loan terms from MoneyHelper; the minimum payment and persistent debt rules from the FCA Handbook. The worked figures are illustrations at the rates stated, worked out by me. Facts last checked October 2026. I check them every month, to catch rates and rules that change.