Annual Percentage Rate - APR

AAA

DEFINITION of 'Annual Percentage Rate - APR'

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.

INVESTOPEDIA EXPLAINS '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.

VIDEO

Loading the player...
RELATED TERMS
  1. Credit Utilization Ratio

    An input used in determining a person's credit score. It is the ...
  2. Auction Rate Bond - ARB

    A debt security with an adjustable interest rate and fixed term ...
  3. Credit Card Balance Transfer

    The transfer of all outstanding balances from one credit card ...
  4. Consumer Credit Protection Act ...

    Federal legislation that created disclosure requirements that ...
  5. Annual Percentage Yield - APY

    The effective annual rate of return taking into account the effect ...
  6. Compounding

    The ability of an asset to generate earnings, which are then ...
RELATED FAQS
  1. Why is it beneficial to innovate financial models and techniques used in quantitative ...

    The majority of consumers use credit cards at some point during their lifetimes to finance major purchases, earn rewards ... Read Full Answer >>
  2. What are some common models that practitioners use in quantitative analysis of equity ...

    Credit cards can be a helpful component in reaching a financial goal or financing some of life's bigger expenses. Carrying ... Read Full Answer >>
  3. Why do some credit cards offer introductory APRs?

    Credit card companies usually offer introductory annual percentage rates (APRs) to attract new customers, preferably those ... Read Full Answer >>
  4. Do lenders offer floating APRs?

    There are floating APRs. APR stands for annual percentage rate, and it must be provided when advertising for credit, as it's ... Read Full Answer >>
  5. What loans do and don't have an APR?

    APR means annual percentage rate and if a loan charges interest, it has one. Due to provisions in the 1968 Truth in Lending ... Read Full Answer >>
  6. What are the differences between APR in Europe and the U.S.?

    The annual percentage rate of a loan is the measurement of how expensive it is to borrow money over the course of one year. ... Read Full Answer >>
  7. What are the differences between payday loans and cash advances?

    Payday loans and cash advances are perhaps the two most popular short-term lending options available to consumers. These ... Read Full Answer >>
  8. Why is APR used to compare long-term loans?

    The widespread use of annual percentage rate, or APR, received a boon with the passing of the Truth in Lending Act, or TILA, ... Read Full Answer >>
  9. In what states are high-cost payday loans illegal?

    Georgia is the only state where high-cost payday loans are expressly prohibited under racketeering laws. In 2014, several ... Read Full Answer >>
  10. What are the basic requirements to qualify for a payday loan?

    Payday loans, also known as cash advances, are short-term, low-balance, high-interest loans typically at usury rates that ... Read Full Answer >>
  11. What is the difference between an interest rate and an annual percentage rate (APR)?

    When evaluating the cost of a loan or line of credit, it's important to understand the difference between the advertised ... Read Full Answer >>
  12. What is the difference between a fixed annual percentage rate (APR) and a variable ...

    The difference between a fixed annual percentage rate (APR) and a variable APR is the time at which the rate can be changed. ... Read Full Answer >>
  13. What is the difference between yields and interest rates?

    The main difference between yields and interest rates is that each term refers to different financial instruments. Yield ... Read Full Answer >>
Related Articles
  1. Credit & Loans

    Credit Card Review: Amex EveryDay

    Learn the benefits of the Amex EveryDay card, such as its introductory offer and rewards perks, and discover the types of consumers for whom it is best suited.
  2. Credit & Loans

    Credit Card Review: Capital One Venture Rewards

    Learn how the Capital One Venture Rewards card helps you earn unlimited rewards miles to pay for all types of travel expenses, such as airfare and hotel costs.
  3. Credit & Loans

    Credit Card Review: BankAmericard Cash Rewards

    Read about the BankAmericard Cash Rewards card, and learn how to start earning unlimited cash back with its simply rewards program.
  4. Credit & Loans

    Credit Card Review: Gold Delta SkyMiles Amex

    Learn about the three American Express cards that partner with Delta Airlines. Understand the benefits of the Gold Delta SkyMiles AmEx card.
  5. Credit & Loans

    Credit Card Review: Citi ThankYou Preferred

    Understand what makes a reward credit card worth opening. Learn about the Citi ThankYou Preferred card and its benefits and drawbacks.
  6. Credit & Loans

    Credit Card Review: Citi Diamond Preferred

    Read about Citi's Diamond Preferred credit card, a low APR offering with excellent balance transfer benefits and a long-term low introductory rate.
  7. Credit & Loans

    Credit Card Review: BankAmericard Travel Rewards

    Understand what the BankAmericard Travel Rewards card is and what its benefits are. Learn about the few drawbacks to the BankAmericard Travel Rewards card.
  8. Credit & Loans

    Credit Card Review: Discover it

    Learn why the Discover it card provides a great balance between cost effectiveness and robust rewards, especially for those who travel internationally.
  9. Credit & Loans

    Credit Card Review: Citi Simplicity

    Understand how the Citi Simplicity credit card works, what its pros and cons are, and which kinds of consumers would be happiest with this card.
  10. Credit & Loans

    Credit Card Review: Discover it Miles

    Understand what makes a credit card valuable and possible drawbacks; learn about the Discover it Miles card and how it may benefit a consumer.

You May Also Like

Hot Definitions
  1. Nuncupative Will

    A verbal will that must have two witnesses and can only deal with the distribution of personal property. A nuncupative will ...
  2. OsMA

    An abbreviation for Oscillator - Moving Average. OsMA is used in technical analysis to represent the variance between an ...
  3. Investopedia

    One of the best-known sources of financial information on the internet. Investopedia is a resource for investors, consumers ...
  4. Unfair Claims Practice

    The improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. By engaging in unfair claims ...
  5. Killer Bees

    An individual or firm that helps a company fend off a takeover attempt. A killer bee uses defensive strategies to keep an ...
  6. Sin Tax

    A state-sponsored tax that is added to products or services that are seen as vices, such as alcohol, tobacco and gambling. ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!