In simple terms, the APR is a measure of how much a given loan, mortgage or credit card will cost you in interest per calendar year. The figure for the APR takes into account all of the normal costs associated with the credit, such as arrangement fees, any annual charges (which may be the case with credit cards) along with other such costs so as to provide a clear, overall figure for the total cost of the loan.

The ways in which the various credit card companies determine who gets what rate differ, however they will generally look at the potential borrower’s credit history, their current financial situation and their employment status to get an idea of whether they will be able to cope with the repayments on the credit limit being requested for.

While the APR the lender charges is up to them, it is largely based at least on the Bank of England base rate, and you will never see a loan being offered at a rate lower than this. Depending on the type of loan and the borrower, the APR of a loan will normally be a couple of percent above the base rate.