What APR, representative APR, AER, EAR and gross rates mean in the UK, when each is used, how to compare loans, cards, overdrafts and savings, and the costs headline rates leave out.
UK financial products quote several different interest rates, which makes comparing them confusing. Each rate has a specific purpose. Knowing which one to look at, and what it leaves out, helps you compare like with like.
APR: annual percentage rate
APR is used for borrowing: loans, credit cards, car finance and mortgages. It shows the yearly cost of borrowing, including interest and certain compulsory fees, such as arrangement fees. Because it includes fees and compounding, it's more useful than the interest rate alone for comparing products.
Representative APR
Adverts often quote a representative APR. This is the rate that at least 51% of successful applicants get. Up to 49% may be offered a higher rate depending on their credit history. Your actual rate could differ, so look for lenders offering a soft-search eligibility check, which shows a personalised rate without affecting your credit score.
AER: annual equivalent rate
AER is used for savings. It shows what you'd earn over a year if interest were added and left in the account, taking account of how often interest is paid. It lets you compare savings accounts fairly, even if one pays monthly and another annually.
Gross rate
The gross rate is the interest rate before tax. Most people now receive savings interest without tax deducted, and many pay no tax on it because of the Personal Savings Allowance.
EAR: effective annual rate
EAR is used for overdrafts. It shows the annual cost of an overdraft including compounding. Since April 2020, banks must charge a single interest rate on arranged overdrafts, with no fixed daily or monthly fees, and must show it as an APR. Overdraft rates are often high, commonly around 35% to 40% APR or more, so they're best for short-term use.
Which rate to compare?
- Loans: compare APR, and the total amount repayable.
- Credit cards: compare the purchase APR, and check introductory 0% periods, balance transfer fees and the rate afterwards.
- Mortgages: compare the initial rate, fees and the APRC (annual percentage rate of charge), which shows the cost over the whole term, assuming you stay on the lender's standard variable rate after the deal ends.
- Savings: compare AER, plus access rules and whether the rate is fixed or variable.
- Overdrafts: compare the APR or EAR, and any interest-free buffer.
What headline rates leave out?
- optional fees, such as payment protection;
- late payment and default fees;
- early repayment charges on loans and mortgages;
- cash withdrawal and foreign transaction fees on cards;
- bonus rates on savings that expire after a set period;
- restrictions such as limited withdrawals.
A worked comparison
Two loans of £5,000 over three years: Loan A at 7.9% APR, Loan B advertised at 6.9% interest plus a £200 arrangement fee. Loan B's APR, which includes the fee, will be higher than 6.9%, and may be higher than Loan A's. Comparing APR and the total repayable shows which is cheaper.
Total amount repayable
For borrowing, the total amount repayable is often the clearest number. A lower APR over a longer term can still cost more in total than a slightly higher APR over a shorter term.
Interest rate changes
Variable rates can change, often following the Bank of England base rate. Fixed rates stay the same for a set period. Check what happens at the end of a fixed period.
Frequently asked questions
Why did I get a higher rate than advertised?
The representative APR applies to at least 51% of successful applicants. Your rate depends on your circumstances.
Is a 0% card really free?
Interest-free during the promotional period, but there may be fees, and the rate rises afterwards. Missing a payment can end the offer.
Sources and further reading
Facts checked on 20 October 2026. Spotted an error? Tell us and we will correct it.