Annual Percentage Rate - APR

Loading the player...

What is an 'Annual Percentage Rate - APR'

An annual percentage rate (APR) is the annual rate that is charged for borrowing (or made by investing), expressed as a single percentage number that represents the actual yearly cost of funds over the term of a loan. This includes any fees or additional costs associated with the transaction.

BREAKING DOWN 'Annual Percentage Rate - APR'

Loans or credit agreements can vary in terms of interest-rate structure, transaction fees, late penalties and other factors. A standardized computation such as the APR provides borrowers with a bottom-line number they can easily compare to rates charged by other potential lenders.

By law, credit card companies and loan issuers must show customers the APR to facilitate a clear understanding of the actual rates applicable to their agreements. Credit card companies are allowed to advertise interest rates on a monthly basis (e.g. 2% per month), but are also required to clearly state the APR to customers before any agreement is signed. For example, a credit card company might charge 1% a month, but the APR is 1% x 12 months = 12%. This differs from annual percentage yield, which also takes compound interest into account.

RELATED TERMS
  1. Purchase APR

    The annual percentage rate that applies to outstanding balances ...
  2. Terms And Conditions (Credit Card)

    A formal statement of the rules and guidelines that govern the ...
  3. Interest Rate

    The amount charged, expressed as a percentage of principal, by ...
  4. Behavior-Based Repricing

    The changing of a credit card holder’s interest rate based on ...
  5. Upfront Pricing

    The interest rates and fees stated in a credit card agreement ...
  6. Consumer Credit Protection Act ...

    Federal legislation that created disclosure requirements that ...
Related Articles
  1. Credit & Loans

    What's the Annual Percentage Rate (APR)?

    The annual percentage rate, or APR, is the cost per year of borrowing. By law, all financial institutions must show customers the APR of a loan or credit card, which clearly indicates the real ...
  2. Credit & Loans

    Credit Cards: Terms Of Agreement

    By Brigitte YuilleCreditors are required to define the terms of using the credit card, and it's imperative that you learn them. Also, know that the creditor can change the terms and conditions ...
  3. Credit & Loans

    How To Read Loan And Credit Card Agreements

    The devil is always in the details! Find out what you're signing yourself up for.
  4. Investing Basics

    The Interest Rates: APR, APY And EAR

    When most people shop for financial products, all they focus on is the listed interest rate. Human eyes instinctively dismiss the fine print, which usually includes the terms APR (annual percentage ...
  5. Credit & Loans

    Credit Cards: Choosing A Credit Card

    By Brigitte YuilleNo matter whether you're considering a credit card for the first time, or if you're a current credit card user looking for better rates, you'll need to figure out your spending ...
  6. Investing Basics

    APR and APY: Why Your Bank Hopes You Can't Tell The Difference

    Banks use these rates to entice borrowers and investors. Find out what you're really getting.
  7. Credit & Loans

    Terrible Credit Score? Try These Credit Cards

    When your credit is less than stellar you have fewer choices. But some are still better than others. Here's our read on which cards to get.
  8. Credit & Loans

    APR vs. APY

    Annual percentage rate and annual percentage yield are two ways companies calculate the amount of interest you can owe. Learn more about them and find out which is the better rate.
  9. Credit & Loans

    Personal Loans: Consider These Alternative Lenders

    Looking for an alternative source of financing for a personal loan? Take a look at these companies.
  10. Retirement

    Six of the Best Credit Cards for Seniors

    You’re retired, but the expenses don't stop. If you’re looking for a new credit card, which should you choose? Here are six cards for seniors to consider.
RELATED FAQS
  1. What loans do and don't have an APR?

    Learn about what annual percentage rates (APR) are and what they mean. Explore different fixed and variable APRs charge by ... Read Answer >>
  2. Why is APR used to compare long-term loans?

    See what benefits an annual percentage rate, or APR, offers to consumers that other interest rate calculations might not, ... Read Answer >>
  3. What is the difference between an interest rate and an annual percentage rate (APR)?

    Comparing the annual percentage rate (APR) on competing loans help you understand the true cost of the loans and make a wise ... Read Answer >>
  4. What are the differences between APR in Europe and the U.S.?

    Learn how the regulatory authorities in the U.S., the European Union and the U.K. treat the calculation and disclosure of ... Read Answer >>
  5. Do lenders offer floating APRs?

    Learn about credit cards with floating, variable and fixed APRs. Explore introductory rates offered by two leading credit ... Read Answer >>
  6. What is the difference between a fixed annual percentage rate (APR) and a variable ...

    Fixed ARP and variable APR loans operate differently but serve the same purpose: to collect interest from a borrower so the ... Read Answer >>
Hot Definitions
  1. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  2. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  3. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  4. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  5. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  6. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
Trading Center