What is Representative APR?
The Representative APR allows you to compare one credit card against another and replaced the ‘typical APR’ previously used for this purpose. It’s usually the card purchase interest rate that’s used for the Representative APR for credit cards.
A Representative example is used to show the typical costs associated with a particular credit card, and shows you how much it could cost you if you borrowed £1,200 over a year.
It will include:
- The card purchase APR (not transfer rates) and whether this is fixed or variable.
- The example shows the Representative APR, whether this is fixed or variable.
- The amount of any annual fee (if applicable).
- An example amount borrowed of £1,200.
It doesn’t include:
- Any other fees such as default fees or transfer handing fees.
- The actual credit line you might be offered.
- This figure of £1,200 is used so it’s easy to compare one credit card against another. However, this doesn’t mean £1,200 is the credit limit you’d be offered – this is based on affordability and individual circumstances, if you go ahead with a full application, and are accepted.
Having all lenders show consumers the same standardised key information means it’s easier to compare.
How useful are Representative APRs/examples?
While Representative APRs and Representative examples make it easier for consumers to compare one product against another, it isn’t the only consideration when choosing a credit card suitable for your needs. You need to bear in mind almost half of successful applicants won’t be offered the advertised rate.
How will I know what Representative APR I will get?
Eligibility checkers can come in handy here. MBNA’s eligibility checker not only tells you whether you’re eligible to apply for a particular MBNA credit card, it also tells you upfront what rate etc you’re likely to be offered if accepted. Eligibility checks only carry out a quotation search, rather than a full credit search, and lenders ignore these so they won’t affect your credit rating.
All lenders also have different lending criteria, so the Representative APR is not an indication of who’ll be accepted. Again, eligibility checkers come into their own here as you can check your likelihood of being accepted before applying and having a full credit search registered.
While the Representative APR/example takes into account any annual fee payable for the credit card, it doesn’t take into account other fees like late or default fees, handling fees for making balance or money transfers, or non-sterling transaction fees if you plan to use your card abroad etc.
It’s important you read through all the main terms and conditions of the credit card you’re interested in to check for things like fees and charges for the type of transactions you’re most likely to make.
The Representative APR/example also doesn’t take into account things like introductory promotional offers on balance or money transfers, as it’s usually the purchase interest rate used in the Representative APR/example.
Introductory Interest Rates
If you’re looking for a balance or money transfer offer, you need to look out for introductory interest rates where you start off paying a low interest rate or no interest at all. The rate then usually increases after a certain amount of time.
You should also compare handling fees a lender charges for transfers, as well as the standard interest rate the offers change to at the end of the introductory period. This will be important if you know you won’t have paid the full balance off by the time the introductory offer ends.
Rewards Credit Cards Representative APR
Rewards, like points or cash back offered on some types of credit card are also not taken into account in the Representative APR/example.
If earning rewards or cash back are going to be important features for you, then you’ll also want to compare how many points or how much cash back you’d receive for every £1 you spend on the card, whether there are any restrictions on these (e.g. if you spend a certain amount or can only spend at certain retailers), when points would expire, and what you can use them for.