UK Financial Regulator Questions Whether APRs Give Borrowers a True Picture of Credit Costs

Britain’s Financial Conduct Authority (FCA) has launched a review of annual percentage rates (APRs), the standard metric used in credit advertising, after its own research found the figure does not always allow consumers to understand what borrowing will actually cost them.

What the Review Covers

The FCA is seeking views on whether APRs — which express the yearly cost of borrowing, including interest and fees — should be replaced or supplemented by alternative disclosures in credit advertising. Current rules require most credit advertisements to display a representative APR, defined as the rate offered to at least half of applicants.

The regulator is also proposing to simplify its consumer credit rulebook by removing duplicated and outdated requirements, on the grounds that the Consumer Duty — which came into force in July 2023 — already obligates firms to ensure their communications deliver good outcomes and support customer understanding.

The Evidence Behind the Review

The FCA’s own research presents a mixed picture. Among consumers shown only an APR figure, 80% correctly identified the cheaper product when a lower APR corresponded to a lower repayment. However, the regulator found that additional metrics — such as total repayment figures — can improve understanding in more complex cases.

The regulator also acknowledged a structural problem: providing different information tailored to different products can make cross-product comparisons harder, not easier.

The scale of the issue is significant. The FCA’s Financial Lives Survey 2024 found that 79% of UK adults — approximately 42.5 million people — held at least one regulated credit or loan product in the previous 12 months.

Why APRs Fall Short

Industry voices broadly welcomed the review while pointing to well-documented limitations of the APR as a disclosure tool. James McCaffrey, a spokesperson for credit platform TotallyMoney, said the metric struggles to account for introductory 0% periods, fees, flexible borrowing structures, and varying offer lengths.

“Loans, cards, buy now pay later and other credit agreements all work differently to one another, which means comparing all your options is even harder,” McCaffrey said.

Paul Matthews, senior risk director at banking and credit advisory firm Broadstone, said the regulator’s findings “reinforce a well-known challenge — APRs are not always a reliable proxy for the true cost of borrowing, particularly where product structures differ.”

Matthews argued for supplementing APRs with “clearer, more tangible measures such as total repayment or pounds and pence cost,” provided these are applied consistently to preserve comparability. “Consumers tend to focus on monthly repayments and overall cost,” he said, “so aligning disclosures with these behaviours will be key to improving outcomes.”

Technology and Timing

The FCA noted that rapid technological change is reshaping the credit sector, with firms developing new products and expanding their digital communications channels — factors that add further pressure on disclosure frameworks designed for an earlier era.

Alison Walters, the FCA’s director of consumer finance, said: “There’s evidence that APRs do not always allow people to understand the true cost of credit. To help people navigate their financial lives, we’re asking for views on whether there’s a better way.”

The consultation closes on 17 June 2025.