APR vs interest rate — what’s the difference?

The APR (Annual Percentage Rate) is the true cost of borrowing — it includes the interest rate plus any mandatory fees, expressed as an annual percentage. Lenders are legally required to advertise the “representative APR” which at least 51% of accepted applicants must receive. Your actual APR may be higher depending on your credit score and the amount borrowed.

The nominal interest rate (without fees) will always be lower than or equal to the APR. When comparing loans, always compare APRs, not just headline interest rates.

Typical UK Personal Loan APRs 2025

£1,000–£2,999: 20–35% APR · £3,000–£4,999: 10–15% APR · £5,000–£9,999: 6–10% APR · £10,000–£25,000: 5–9% APR. Best-buy rates are typically available to applicants with excellent credit scores.

How to reduce the total cost of your loan

The two most effective ways to reduce total interest paid are: choosing a shorter loan term (monthly payment is higher but total interest is dramatically lower) and making overpayments when possible. Most UK personal loans allow early repayment, though some charge an early repayment fee of up to 58 days’ interest.

Improving your credit score before applying can also unlock a significantly better rate. A difference of 3–4 percentage points in APR on a £10,000 loan over 5 years can save over £1,000 in total interest.

Frequently asked questions

Can I pay off a personal loan early?
Yes — you have a statutory right to repay any consumer credit agreement early. Lenders can charge an early repayment fee of up to 58 days’ interest on the outstanding balance. For most loans this is a small amount relative to the interest saved. Always get a settlement figure in writing before making a final payment, as the lender must provide one within 7 days of your request.
Does taking out a loan affect my mortgage application?
Yes — personal loan repayments are counted as existing commitments in mortgage affordability assessments. Lenders typically reduce the mortgage offer by 8–10× the monthly loan repayment. A £200/month loan payment can reduce mortgage borrowing by £16,000–£20,000. If a mortgage is planned within the next 1–2 years, it may be worth waiting until the loan is repaid before applying, or at minimum not taking out new loans in the months before applying.
Is it better to get a loan or use a 0% credit card?
For amounts under £5,000 and if you can repay within the 0% period (typically 12–24 months), a 0% purchase or money transfer credit card will almost always be cheaper than a personal loan. The risk is that if you don’t clear the balance by the end of the promotional period, the revert rate can be 20–30% APR. For larger amounts or longer terms, a personal loan at a fixed rate gives more predictability and is usually cheaper than a credit card’s standard rate.