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What is APR? Discover how credit card interest works

When you make a purchase on your credit card, you’re effectively borrowing a sum of money with the promise to pay it back later. But what you borrow and what it ends up costing can be two different amounts because of the interest charged by the credit card provider for lending you this money.

What is an APR?

Borrowing money usually attracts interest charges. APR stands for Annual Percentage Rate. In a nutshell, it’s the total cost of your borrowing over the course of a year. It includes the interest charged, any fees you’re charged and how often the interest is charged. This is what you’ll pay on top of the money borrowed.

You’ll find APRs are shown as a percentage, making it easier to compare the different rates offered by lenders. All lenders are legally required to calculate their APR based on the same rules to help you weigh up your options.

What’s a good APR?

A good APR depends on whether you can afford to make the repayments at the rate you’ve been offered. APRs are set by lenders based on your credit score, and reflect the risk to the lender.

To stand a better chance of getting your hands on a decent APR, you’ll usually need a good credit score, so it’s worth checking it before you apply.

Doing things like making sure your credit file is correct, keeping on top of all your repayments and creating a history of responsible borrowing will all help your credit file be as good as possible. For more ways to improve your credit score, check out our handy guide.

When applying for credit, it’s important not to make too many applications within a short space of time. This can set alarm bells ringing for lenders as it can look like you’re seeking multiple sources of credit.

Clever Check - our credit card eligibility checker

In just a few minutes, see the MBNA credit cards you’re eligible to apply for, your estimated credit limit and the likelihood of being accepted - all without affecting your credit rating. Your Clever Check results will include details of any promotional offers, along with a representative APR and example to help you understand the costs.

It’s a quick and easy way to see if we can meet your borrowing needs before you spend time completing a full application.

Learn more about Clever Check

Making repayments

Credit cards can give you flexibility when it comes to repayments. Apart from having to make the minimum monthly payments, you can decide how much you pay off each month. You can pay off the balance in full, stick to the minimum payment, or pay an amount somewhere between the two. Just remember, if you only make the minimum payments it will take you longer and could cost you more to clear your balance.

Other things to consider

Although the APR and interest rates are some of the most important things to think about when choosing your next credit card, you should also look at the benefits and drawbacks of each card. So when you’re shopping around, be on the lookout for the features that will be most important to you based on how you plan to use the card.

Interest rates and fees are important when looking for a credit card they can be the difference between an affordable monthly repayment and one that squeezes your budget. Knowing how the costs work on credit cards can help you make an informed decision about what’s best for you.