APR
Back to GlossaryDefinition
The yearly cost of borrowing expressed as a percentage, including fees and interest.
Summary
APR (Annual Percentage Rate) is the total yearly cost of borrowing money expressed as a percentage, including not just the interest rate but also additional fees and costs associated with the loan. Unlike a simple interest rate, APR gives borrowers a more complete picture of what they'll actually pay for credit by incorporating origination fees, closing costs, and other charges into one standardized figure. This makes it easier to compare different loan offers from various lenders.
Usage Context
Critical when studying consumer finance, loan comparison, credit products, and financial decision-making. Essential for understanding true borrowing costs and making informed financial choices.
Common Confusions
- Thinking APR and interest rate are the same thing
- Not understanding that APR includes additional fees beyond interest
- Confusing APR with APY (APY is for savings/investments, APR is for loans)
- Assuming a lower interest rate always means a better deal without checking APR
