Annual Percentage Rate (APR)
The yearly interest rate charged on borrowed money or earned on an investment, including fees.
Definition
The Annual Percentage Rate (APR) represents the total yearly cost of borrowing money, expressed as a percentage. Unlike a simple interest rate, APR includes additional fees and costs associated with the loan, such as origination fees, closing costs, and mortgage insurance. This makes APR a more comprehensive measure of borrowing costs. Federal law (Truth in Lending Act) requires lenders to disclose the APR to borrowers. For credit cards, APR can be variable (tied to an index like the prime rate) or fixed. A lower APR means lower borrowing costs.
Related Terms
Annual Percentage Yield (APY)
The real rate of return earned on an investment, accounting for compound interest.
EconomyInterest Rate
The percentage charged by a lender or paid by a borrower for the use of money over a period of time.
InvestingCompound Interest
Interest calculated on both the initial principal and accumulated interest from previous periods.