Annual Percentage Rate (APR)

The Annual Percentage Rate (APR) is a standardized measure of the cost of borrowing, expressed as a yearly interest rate. It includes not only the interest charged on the loan but also any fees or additional costs associated with obtaining the loan. APR provides borrowers with a clear understanding of the total cost of a loan, allowing them to compare different lending options on an equal basis. This rate is used for various types of credit, including mortgages, credit cards, and auto loans.

Example

If a credit card has an APR of 18%, this means that if the balance is carried for a year, the cost of borrowing, including interest and fees, will be 18% of the outstanding balance.

Key points

• A yearly interest rate that includes the cost of borrowing plus fees.

• Used to compare loans and credit products on an equal basis.

• Helps consumers understand the true cost of borrowing.

Quick Answers to Curious Questions

What does the APR include?

APR includes the interest rate on the loan as well as any additional fees or costs associated with obtaining the loan.

Why is APR important for comparing loans?

It provides a standardized way to compare the true cost of borrowing between different lenders and loan products.

How does APR differ from the interest rate?

While the interest rate only reflects the cost of borrowing, APR includes both the interest rate and any fees or additional costs, providing a more comprehensive picture of the loan’s cost.