The Annual Percentage Rate (APR) is the amount of interest charged on loans by lenders, including credit card companies. The APR on a credit card determines how much you have to pay back each month to cover minimum charges and interest on the credit card loan. It is calculated as a monthly charge multiplied by 12, depending on the balance of the card. For example, a card with a 10.2% APR (divided by 12) would give a monthly interest rate of 0.85% on the outstanding balance. On a 1,000 loan, this would equate to an interest charge of 8.50 a month. The total amount would depend on how much of your outstanding balance you paid off each month and if you made only minimum payments or additional payments to clear the balance.

APR is a useful comparison tool when selecting credit card offers, but there are key factors to remember when looking at the numbers. Consider the interest rate you have to pay, how you repay the loan and the length of the loan agreement. Also look closely for any additional fees associated with the loan, such as payment protection insurance. All lenders have to disclose their APR before you sign any agreement, and as the APR has a direct bearing on the cost of your loan shopping around to find the best deal is basic common sense. Don't be fooled by offers that appear too good to be true - they probably are. Responsible card lenders will give you all the facts and figures you need to make an informed decision.

Once you have found what appears to be an attractive APR rate, there are a few more questions you should ask the lender before committing to any agreement. The first of these is if the APR is fixed or variable. If the rate is variable, what may seem like an attractive offer in the first instance may change dramatically after an initial introductory period. A variable rate will also be affected by any changes in the base interest rate, set by the Bank of England. With variable rates, your payments can go down as well as up, so it pays to check the fine print. With a fixed rate, your repayments stay the same.

The next question to ask is if there are any additional charges that are not included in the APR. This could include charges for services such as optional payment protection insurance. If additional charges are included, make sure you understand what they are, ask yourself whether you really need the services offered and how much and when you would have to pay. At this point, it is wise to ask yourself if you can afford the monthly payments. A more expensive loan with a higher APR could have lower monthly repayments if they are spread out over a longer period of time. This might suit those on a tighter budget, but it is sensible to calculate how much extra you would be paying in the long run.

Finance and lending has long been thought of as a murky part of business, complex and difficult to understand. APR stands apart from the system in that the Government and financial regulatory bodies recognise the public's unease when dealing with these mysterious financial figures and have put strict guidelines in place. All lenders are required to give full disclosure of APR charges to customers, allowing them to make an informed decision. Card companies are happy to comply with this, preferring that their customers know exactly what is expected from the outset from both parties. It makes for a far better business arrangement. APR can be calculated easily with a little bit of effort and a pocket calculator because all the facts and figures are there; it's just a matter of seeing how they relate to your situation. The temptation to leap feet first into a 0% credit card offer may be strong, but by taking a moment to examine all the costs involved expensive mistakes can be avoided and your all-important credit rating can be preserved intact.

Without examining all the facts and figures, it is impossible to make an informed decision as to which credit card offer is right for you. APR offers consumers a flashlight to light their way along the dark paths of personal finance and credit card agreements. By spending a little time looking at all the offers a good deal can be found that ticks all the boxes whilst avoiding hefty charges. Don't just be drawn in by the lure of the glitzy 0% boys - more long-term options may seem dull in comparison at first, but could be kinder on your bank balance in the long run.