APR (Annual Percentage Rate)
Definition
The yearly cost of borrowing money expressed as a percentage, including fees and interest charges.
Formula
APR = ((Interest + Fees) / Principal) / n × 365 × 100The Annual Percentage Rate (APR) represents the total annual cost of borrowing, including the interest rate plus any additional fees charged by the lender. Unlike the simple interest rate, APR gives borrowers a more complete picture of what a loan actually costs.
For credit cards, APR is the rate applied to your outstanding balance if you carry debt from month to month. Credit card APRs typically range from 15% to 30%, depending on your creditworthiness. For mortgages, APR includes origination fees, closing costs, and mortgage insurance in addition to the interest rate.
Comparing APRs across lenders is one of the most effective ways to find the best loan deal, since it standardizes the cost comparison. The Truth in Lending Act requires lenders to disclose the APR before you sign any agreement.
Related Calculators
Related Terms
APY (Annual Percentage Yield)
financeThe effective annual rate of return on an investment or savings account, accounting for compound interest.
Interest Rate
financeThe percentage charged by a lender on borrowed money or paid to a saver on deposited funds, expressed as an annual percentage.
Principal
financeThe original amount of money borrowed in a loan or the initial amount of money invested, excluding interest or returns.
Compound Interest
financeInterest calculated on both the initial principal and the accumulated interest from previous periods, causing wealth to grow exponentially over time.
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