APR (Annual Percentage Rate) is the yearly cost of borrowing money, expressed as a percentage, including interest and certain additional charges like processing fees.
APR is a standard measure used to help borrowers understand the true cost of a loan or credit card. Unlike a simple interest rate, APR gives a more complete picture because it may include not only the interest charged by the lender but also other applicable fees spread over a year.
APR is widely used for personal loans, home loans, auto loans, and credit cards. A lower APR generally means lower borrowing cost, making it easier to compare different loan offers from banks and financial institutions on a like-to-like basis.
In credit cards, APR usually applies to outstanding balances when the full bill is not paid by the due date. Different APRs may apply for purchases, cash advances, or late payments.
Borrowers should always check whether the APR is fixed or variable, as variable APRs can change with market interest rates.
"If a personal loan has an interest rate of 12% per year and additional fees that increase the total cost, the APR may come out to 13%. This means the borrower effectively pays 13% annually for the loan."