FCA to review APRs as a borrowing cost

The Financial Conduct Authority (FCA) has published a review into whether Annual Percentage Rates (APRs) help consumers understand borrowing costs, with the regulator seeking views on whether it should change how these are communicated in credit advertising.

APRs indicate the yearly cost of borrowing, including interest and fees. A representative APR means at least half of consumers receive that rate or better. Current rules require representative APRs in most credit advertising.

The FCA’s research shows APRs are useful for consumers to compare products, but additional information, like total repayment figures, can also help consumers understand. Providing different information tailored to different products can sometimes make comparison harder and more confusing.

Alison Walters, Director of Consumer Finance at the FCA, said, “Clear information advertising credit helps people shop around. But 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 Discussion Paper published today, alongside the Consultation Paper on stripping back overly prescriptive requirements, focuses on whether more flexible ways of presenting loan costs could help borrowers make better informed choices. The Discussion and Consultation Paper closes on 17 June 2026.

Paul Matthews, Senior Risk Director at Broadstone, said “APRs have long been the cornerstone of credit advertising, but the regulator’s research reinforces a well-known challenge – they are not always a reliable proxy for the true cost of borrowing, particularly where product structures differ.

“The FCA’s willingness to revisit how borrowing costs are communicated is therefore welcome, especially at a time when affordability will be critical to a well-functioning credit market. There is a strong case for complementing APRs with clearer, more tangible measures such as total repayment or pounds-and-pence cost, provided this is done in a consistent way that preserves comparability.

“Consumers tend to focus on monthly repayments and overall cost, so aligning disclosures with these behaviours will be key to improving outcomes. Under the Consumer Duty, firms are already expected to ensure communications are understandable and support good outcomes, so any simplification of the rulebook should focus on reducing duplication while maintaining robust standards.

“The priority should be a balanced approach that improves consumer understanding without introducing unnecessary complexity. Any move towards more flexible disclosures will need careful calibration to avoid inconsistent approaches across the market, which could ultimately undermine comparability.”

Jake Attfield, Head of Strategy at Fair4All Finance said “Fair4All Finance welcomes the FCA’s review of how borrowing costs are communicated and the opportunity to rethink whether APRs are working for consumers in practice.

“Our research has shown that consumers find APR unhelpful as a way of determining the true cost of credit. While APRs may support comparison of products in some circumstances, evidence suggests they are particularly confusing as a measure of value for shorter-term products.

“Research supported by Fair4All Finance found that consumers who were presented with a simple representation of borrowing costs in pounds and pence were three times more likely to understand the cost of credit, compared with those who were provided with APR and a representative example.
“As the FCA consults, it will be vital that the needs of financially vulnerable consumers are placed at the centre of reforms. This review could help create a fairer credit market that supports better outcomes for all borrowers.”