credit

APR

Annual Percentage Rate — the yearly cost of borrowing money, expressed as a percentage, including both interest and fees. The true cost of a loan.

Example

“The credit card advertised a low 0% introductory APR, but the regular rate jumped to 24.99% after 12 months.”

Memory Tip

APR = Annual Percentage Rate. The TRUE yearly cost of borrowing, all-in.

Why It Matters

APR helps you understand the true cost of borrowing by showing the complete yearly expense as a single percentage. This allows you to compare different loans and credit offers fairly, since a lower APR means you will pay less money over time.

Common Misconception

Many people confuse APR with the interest rate and think they are the same thing. APR actually includes both the interest rate and other fees like origination fees or closing costs, so it is always equal to or higher than the interest rate alone.

In Practice

If you borrow 10,000 dollars with a 12 percent APR over one year, you will pay approximately 1,200 dollars in interest and fees combined. However, a loan with a 10 percent interest rate but 500 dollars in fees might have a higher APR than 12 percent, making it more expensive despite the lower advertised interest rate.

Etymology

Acronym for Annual Percentage Rate. Standardized by the US Truth in Lending Act of 1968.

Common Misspellings

A.P.R.APPR

Related Terms

APY interest rate Mortgage Rate

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APR