The interest rate
The interest rate (also called the borrowing rate) is the percentage a lender charges per year on the money you owe. On its own it does not include fees.
Cards and loans usually charge interest monthly. The simple version is: monthly interest = balance × yearly rate ÷ 12.
A rate can be fixed for the whole agreement or variable, which means it can change over time. With a variable rate, your monthly interest can rise even when your balance doesn't.
A worked example
You owe €2,000 on a card at 18% a year. One month of interest is 2,000 × 0.18 ÷ 12 = €30.
If you pay €30, the balance doesn't move at all. Pay €100 and only €70 reduces what you owe. That is why paying only the minimum can keep a balance alive for years.
Repaid as a loan over 12 months instead, €2,000 at 18% costs about €183.36 a month, or 183.36 × 12 = €2,200 in total – about €200 of interest. Each month's interest is smaller than the last because the balance keeps shrinking.
What the APR adds
The APR (annual percentage rate of charge) is the total cost of the credit – interest plus fees such as arrangement or account charges – expressed as a yearly percentage of the amount borrowed. A few costs, such as notary fees, are left out.
So two loans with the same 7% interest rate can have different APRs if one charges a fee. The one with the fee costs more, and its higher APR shows that.
The APR is a yearly figure for the whole loan. Use it to compare offers, and the monthly sum above to understand your statement.
What EU rules require
Under the EU consumer credit rules (Directive 2008/48/EC), the information a lender must give you before you sign includes the APR and the total amount you will pay, illustrated with a representative example. The credit agreement itself must state them too.
From 20 November 2026 those rules are replaced by Directive (EU) 2023/2225, which defines the APR in the same way: the total cost of the credit as a yearly percentage of the amount borrowed.
When you compare offers, compare APRs for the same amount and length, and check the total amount payable. To see how interest stacks up across several debts, read avalanche vs snowball.