EyeOnKey terms A–Z
Quick definitions in plain English. Meanings and rules can vary by country and provider.
- APR (annual percentage rate)
- The yearly cost of borrowing shown as a percentage, including interest and compulsory fees.
- Arrangement fee
- A one-off charge for setting up a loan or mortgage that can be included in the APR.
- Compound interest
- Interest charged on both the original amount and interest already added.
- Cost of credit
- The difference between what you borrow and what you pay back in total.
- Early repayment charge
- A fee a lender may charge if you pay off all or part of a loan early.
- Fixed rate
- A rate that stays the same for a set period.
- Introductory rate
- A temporary rate that changes after a set period, so the APR may not reflect the long-term cost.
- Nominal interest rate
- The basic rate before fees and compounding are taken into account.
- Overdraft interest (EAR)
- Overdrafts often show an equivalent annual rate, which makes them easier to compare with other credit.
- Personalised APR
- The rate actually offered to you after the lender has assessed your application.
- Representative APR
- A headline rate that must be available to at least 51% of people who are accepted. Your own rate can be different.
- Term
- The length of time over which a loan is repaid.
- Total amount payable
- Everything you repay over the life of the credit, including interest and fees.
- Variable rate
- A rate that can rise or fall, for example when a base rate changes.
What APR means and how it differs from an interest rate
APR stands for Annual Percentage Rate and is meant to express the annualized cost of borrowing as a single percentage. Rather than showing just the periodic interest charge, APR is presented so that interest and certain required fees are reflected on an annual basis. Because it converts costs into a common metric, APR can be useful when you want a quick sense of relative expense across different credit offers that have similar terms and fee structures.
The nominal interest rate is the basic cost charged on the loan balance and often determines the monthly interest portion of a payment. APR differs because it attempts to capture additional upfront or mandatory fees alongside that interest. This means two products with the same nominal interest rate can have different APRs if one includes arrangement or administrative fees, so APR is not identical to the stated interest rate and can be a better comparison tool in many cases.
How APR is constructed and what it usually includes
Calculating APR typically involves spreading required fees over the life of the agreement and converting the combined cost into an annual percentage. The specific arithmetic and assumptions used to annualize fees can vary by practice, which means APR values can be sensitive to the chosen calculation method and to factors such as the loan term or repayment schedule. A single large upfront cost can push APR higher on short-term credit than the same fee would on a long-term arrangement.
Commonly included items are the interest charge and fees that are required to obtain the credit, such as certain origination or administrative fees. Charges that are optional or contingent, for example optional protection products, late-payment fines, or early-repayment penalties, are often excluded from the APR figure. Variable-rate features and promotional introductory pricing can also affect how representative the APR is of the cost you actually pay over time.
Using APR to compare offers and what to watch for
APR is most helpful when you compare offers with similar repayment terms, fee types, and compounding characteristics. Differences in term length, timing of fees, or whether the rate is fixed or variable can make APRs less directly comparable, so it helps to complement APR comparisons with a look at payment schedules and total expected cost under realistic scenarios. For revolving credit or products with changing balances, APR may give only a limited picture and should be combined with other information.
Practical next steps include asking providers for a written cost breakdown and sample repayment illustrations, trying simple calculators to see how fees and interest interact under different terms, and noting any exclusions from the APR figure. Clarifying whether a rate is promotional, how long a promotional rate lasts, and which fees are mandatory can help you interpret APR more accurately when weighing credit options.