APR (Annual Percentage Rate)
Quick Answer
APR is the total annual cost of borrowing including the interest rate and all fees, expressed as a percentage.
Definition
APR is the total annual cost of borrowing including the interest rate and all fees, expressed as a percentage.
Explanation
APR provides a more complete picture of borrowing costs than the nominal interest rate alone because it includes lender fees, points, and other charges. This makes it easier to compare different loan offers. The APR is typically higher than the stated interest rate.
By law, lenders must disclose the APR on all consumer loans and credit cards. When comparing loans, the lowest APR generally means the lowest total cost, assuming all other terms are similar.
Example
A loan with a 5% interest rate but 3% in fees might have an APR of 5.5%. Comparing APRs rather than rates gives a truer cost comparison.
Frequently Asked Questions
What is APR (Annual Percentage Rate)?
APR is the total annual cost of borrowing including the interest rate and all fees, expressed as a percentage.
How does APR (Annual Percentage Rate) work?
APR provides a more complete picture of borrowing costs than the nominal interest rate alone because it includes lender fees, points, and other charges. This makes it easier to compare different loan offers. The APR is typically higher than the stated interest rate.By law, lenders must disclose the APR on all consumer loans and credit cards. When comparing loans, the lowest APR generally means the lowest total cost, assuming all other terms are similar.
Can you give an example of APR (Annual Percentage Rate)?
A loan with a 5% interest rate but 3% in fees might have an APR of 5.5%. Comparing APRs rather than rates gives a truer cost comparison.
Free Excel Templates
Also try our free Mortgage Amortization Schedule template
Create a detailed mortgage amortization schedule. See exactly how much principal and interest you pay each month over the loan term.
Download Mortgage Amortization Schedule