Answers · UK 2025/26
What is the difference between APR and AER?
APR (Annual Percentage Rate) is for borrowing — the true cost of credit including fees, expressed as an annual rate. AER (Annual Equivalent Rate) is for savings — the rate you actually earn after compounding, regardless of how often interest is paid.
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UK APR vs AER definitions. APR (Annual Percentage Rate) — applies to credit products (loans, credit cards, mortgages). Represents the total cost of borrowing including interest plus fees (arrangement fees, set-up costs), expressed as an annual percentage. APRC (Annual Percentage Rate of Charge) is similar but specifically for mortgages and includes assumptions like full term at SVR after the deal period ends. Representative APR — the rate at least 51% of approved customers receive; you might get a worse rate based on credit assessment. AER (Annual Equivalent Rate) — applies to savings products. Shows the rate you'd earn if interest compounded once a year, even if the actual product pays interest monthly, quarterly, etc. Always quoted alongside or instead of "gross rate" so you can compare like-for-like. Why both exist: to enable apples-to-apples comparison across products with different fee structures (APR) or compounding intervals (AER). Common gotchas: 0% APR credit card with a 3% balance-transfer fee — calculate effective cost over actual repayment period; "5% gross" interest paid monthly = ~5.12% AER (so the 5% AER product paying yearly is slightly worse than a 5% gross monthly account). Mortgage rates: compare both the headline rate AND APRC because the deal usually ends after 2-5 years.
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This answer is informational only and does not constitute financial, tax or legal advice. Figures are for the 2025/26 UK tax year. See our methodology and sources.