Definition
Annual Percentage Rate (APR)
APR is the true annual cost of a loan, including interest and most fees, expressed as a single percentage for easy comparison.
The Annual Percentage Rate (APR) captures the total yearly cost of borrowing — the interest rate plus processing fees and certain other charges — in one figure, making it easier to compare loans whose headline rates look similar but have different fees.
A loan with a low advertised interest rate but high fees can have a higher APR than one with a slightly higher rate and no fees. For credit cards, the APR (often quoted monthly and then annualised) reveals the steep cost of revolving unpaid balances.
When comparing loans or cards, ask for the APR rather than just the interest rate, and read the fine print on fees, since the APR gives a fairer picture of what you will actually pay.
Related terms
- EMI (Equated Monthly Instalment)An EMI is the fixed monthly payment you make to repay a loan, combining both principal and interest.
- Credit Utilization RatioCredit utilization is the share of your available credit-card limit that you are using, and it strongly affects your credit score.
- Personal LoanA personal loan is an unsecured loan for any personal need, sanctioned mainly on the basis of your income and credit score.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.