Koyo Loans
Apply now

Is a higher APR better?

Written byKoyo Loans
First published15th November 2022
  • Introduction
  • Is a higher APR better?
  • Why are APR rates so high?
  • What’s the difference between the interest rate and the APR?
  • When do you pay APR?
  • What affects APR?
  • Conclusion

In 30 seconds…

When you apply for credit, the lower the APR you’re offered, the better. After all, the APR is an indicator of how much it will cost you to borrow the money each year. You will notice that lenders display their representative APR, which is the rate that at least 51% of applicants are offered. When you submit your application, you will be offered an APR based on your creditworthiness. Your credit score and history affect the APR that you’re offered, so it’s worth trying to improve your score before submitting a loan or credit card application.


If you’ve been researching different forms of credit, you will have noticed that the given Annual Percentage Rate (APR) is different from lender to lender. But why is this? What influences APR? We answer these questions and more below, helping you to understand the importance of APR when you apply for credit.

Is a higher APR better?

The lower the APR, the better it is for you as a borrower. A higher APR means that you’re required to pay more interest on your loan, which means it costs more to borrow money. So, when you’re comparing the market, it makes sense to go with a provider that offers a comparatively low APR.

APR stands for Annual Percentage Rate and is important because it provides you with a metric to use to compare the value of credit products. You will see APR expressed for credit cards, loans, and mortgages, and it refers to the annual cost of borrowing money. APR includes your interest payments and various other fees and charges associated with borrowing money.

Lenders are legally required to display their APRs, so you can easily compare and contrast the financial products currently on the market. You might see some lenders list their representative APR, which is the rate that 51% of applicants will be eligible for. The rate of APR that you are offered depends on your credit file and current finances, so you have to bear this in mind when you submit a loan application.

Why are APR rates so high?

Credit cards typically come with such high rates of APR because they are considered to be high risk. This is because lots of borrowers either pay late or don’t make their repayments at all, which leads lenders to charge high rates of interest to compensate for the increased risk.

Less risky forms of credit such as mortgages and secured personal loans usually have lower rates of APR, but the rate that you’re offered still largely depends on your credit history. If a lender regards you as a high-risk borrower – someone with a poor credit history, for instance – they might offer you credit with a high APR because of the fact that you might default on your repayments.

If you want to access financial products with a lower APR, you need to work on your credit file. The best way to do this is to make all of your repayments on time, which is one of the key determinants of your credit score. You can also check that your current credit file is up to date, which you can do by contacting one of the three UK credit bureaus to request a copy of your file.

What’s the difference between the interest rate and the APR?

The primary difference between interest rate and APR is what is included in the figure presented. The interest rate is simply the amount you need to pay each year to borrow money, expressed as a percentage.

Conversely, the APR is a broader measure of the cost of borrowing money, as it includes the rate of interest as well as various other fees and charges. The APR considers fees such as broker fees, closing costs, and rebates, which allows you to ascertain the true cost of borrowing money. As a borrower, it’s important to consider both the interest rate and APR, as you can use them to compare the various financial products available to you.

So, the key thing to remember is that the interest rate is simply the cost of borrowing money given as a percentage, while the APR incorporates interest and a range of other fees. So, if you want a true picture of the cost of borrowing, consider using the given APR as your chosen metric to discern value in the market.

When do you pay APR?

Although APR is an annual calculation of the cost of borrowing money, it is added to your repayments once every month. You’re not required to do anything to pay the APR on your loan, as it is factored into your monthly installments.

Despite the fact that APR includes additional fees associated with borrowing money, other charges such as missed repayments and cash withdrawals are excluded. So, if you fail to make your payments on time or withdraw money via a credit card, for instance, you will be subject to an additional, one-off payment in addition to your APR.

Making your monthly repayments on time every month is really important for your credit score, so make sure you have enough money in your account to cover the cost. You can usually negotiate a new payment date with your lender if the current situation isn’t ideal for you, which is a smart move if you’re at risk of missing your repayments.

What affects APR?

Several factors affect APR, and every borrower is assigned a rate based on their own circumstances. For instance, a lender will consider the type of loan, your credit score, and your general risk profile before determining what APR to offer you.

Lenders will offer people they regard as low-risk borrowers a lower APR than those they deem more likely to default on their repayments. It’s also important to realise that some types of credit are more expensive than others, which also influences the rate of APR offered. Credit cards are usually offered with a higher APR than personal loans, for instance.

You will find that most lenders advertise their representative APR on their websites, which you should only use as a guide when you’re assessing which type of credit is the most affordable. When your application is approved, the lender will offer you an APR that is specific to you as a borrower, which you can then decide to accept or reject.


Before submitting a loan application, make sure you check the APR offered by the lender. You can then use it as a way of comparing the value of the credit you’re offered, which will help you identify the best value credit for your financial circumstances.

Koyo Loans is the trading name of BETR Technology Ltd. Company No. 11483187. Registered Office: Huckletree Soho, Ingestre Court, Ingestre Place, London, W1f 0JL

Key takeaways

The representative APR advertised by lenders is the rate that they offer to at least 51% of applicants. The APR that you’re offered will depend on multiple factors, including your credit score. A lower APR is better, as it means the loan will be cheaper than if you’re offered a higher APR.

The best way to improve your chances of being offered a low APR is to work on your credit score. Lenders offer better rates to borrowers who they perceive to be more likely to repay the money on time. Therefore, improving and then maintaining your credit score will help you access better offers from lenders.

The APR is then factored into your monthly repayments, so you don’t need to worry about making additional payments to your lender. That being said, if you miss or make late repayments, you will be charged an additional fee. The key thing to realise is that APR is a crucial metric when it comes to ascertaining the value of a credit arrangement. The lower the APR you are offered, the cheaper the loan will be, provided you make your monthly payments on time.

Related Articles