Getting credit in retirement

There are dozens of companies that can offer you credit cards and loans, but before you choose one, it's worth understanding some of the key criteria first. So read on to find out how loans and credit cards work, what APRs are, and what finance companies mean when they mention 'representative rates' in adverts.

How do credit cards and loans work?

Firms that provide credit make money from us by charging interest on the money that we borrow from them. So if you buy something for £100, you will end up paying back £100 plus the interest you owe. This is the cost of you borrowing the money. What the cost is, will depend on the interest rate you are being charged, and the length of time you borrow the money for.

What is APR?

Often when you see a credit card or loan advertised, you will see a figure published that has the APR by it. This is the Annual Percentage Rate - the rate of interest you will be charged over a year for borrowing. It is a legal requirement for a lender to show you the APR so that you can easily compare the cost of different borrowing. 

Is this the amount that will actually be charged?

If you take out a credit card or loan where the actual rate of interest is fixed for the entire period you repay the debt, then yes, the APR is what you would pay. However, if you take out a credit card or loan where the interest can vary (e.g. 0% for first 12 months and then another rate after this period) then the APR will not reflect the actual cost to borrow the money you need.

It's also worth mentioning that providers often use the term 'representative APR'. This doesn't mean everyone will get this rate - it only means that as few as 51% of people that apply for the credit card or loan will actually get that rate. Everyone else might get a different rate.

What does 'representative APR' mean for Credit Cards?

For credit cards, the rate you are charged to make purchases is the one used as the main rate to advertise the card (not the one that's used for balance transfers or to make cash withdrawals). If it states that the representative APR is 9.9%, then at least 51% of people accepted to take out this card would get this rate, and up to 49% of people might be offered a different rate. You could be one of these people, so it's important to check exactly what interest you will be charged.

What does 'representative APR' mean for loans?

For loans, if a loan is being advertised as a representative APR of 4.5% then as few as 51% of people taking out this loan would get this rate (although it could be a higher percentage) – and up to 49% may not.

Often the rate you are actually offered depends on your credit score. To find out more about credit scoring, take a look at our credit score page.