general
Annual Percentage Rate (APR)
APR is the annual cost of borrowing, expressed as a percentage. Unlike an interest rate, APR includes fees and other costs, making it the better figure for comparing loan offers.
Two mortgages may have the same interest rate but different APRs if one has higher origination fees. The APR reflects the true cost of the loan over its full term.
For credit cards, APR is the annual interest rate charged on balances — though because credit card interest compounds monthly, the effective rate you pay can be slightly higher than the stated APR.
Regulation requires lenders in the US (Truth in Lending Act), UK, EU, and Canada to disclose APR prominently so borrowers can compare offers on a level footing.
Related terms
- Annual Percentage Yield (APY)
- APY is the real rate of return on a savings account or investment after compounding is factored in for one year. A higher compounding frequency means APY > APR at the same nominal rate.
- Interest Rate
- An interest rate is the percentage of the principal charged by a lender to a borrower for the use of money, or paid by a bank on deposited funds. It is quoted as an annual percentage.
- Mortgage Payment
- A mortgage payment is the fixed monthly amount owed to a lender, covering principal and interest (P&I). It may also include escrow for property tax and homeowners insurance (PITI).
Frequently asked questions
What is Annual Percentage Rate (APR)?
APR is the annual cost of borrowing, expressed as a percentage. Unlike an interest rate, APR includes fees and other costs, making it the better figure for comparing loan offers.