AER is the Annual Equivalent Rate. AER is also called an effective interest rate, Effective Annual Rate (EAR) or Annual Percentage Yield (APY). AER is primarily used to compare savings accounts but can also be used to calculate interest on loan and credit products. AER is used because it takes compound interest into account. Compound interest is just interest on interest you’ve earned in a previous period.
For example, if you have an overdraft of £1,000 and the EAR is 1%, your £1,000 will grow to £1,010 at the end of the year. The next year, you will pay interest at an EAR rate of 1% on £1,010. This goes on until the entire amount is paid in full.
To calculate EAR and see how much a loan would cost you use an EAR calculator. There is an EAR calculator available here.