Finance · Glossary
What is APR (Annual Percentage Rate)?
Quick definition
The yearly cost of a loan, expressed as a percentage, including most fees. Used when borrowing money.
Full explanation
APR (Annual Percentage Rate) is the standardized way to express the yearly cost of borrowing money. It includes the interest rate plus most lender fees (origination, points, mortgage insurance), giving you a single number to compare loan offers from different lenders. Federal law requires lenders to disclose APR on consumer loans. APR does NOT include compounding — for that, look at APY. When shopping for a mortgage, auto loan, or credit card, the lowest APR is the cheapest loan. The inverse concept (what you EARN on savings) is APY.
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Related terms
More from Finance
APY (Annual Percentage Yield)
The yearly return on a deposit or investment, including the effect of compounding. Used when saving money.
Compound Interest
Interest calculated on the initial principal AND on the accumulated interest from previous periods. The engine of long-term wealth.
Simple Interest
Interest calculated only on the original principal, not on accumulated interest. Used in short-term and consumer loans.
Principal
The original sum of money borrowed or invested, not including interest. The base on which interest is calculated.
Amortization
Spreading loan payments over time so each payment covers both principal and interest, with the loan fully paid off at the end.
Equity
The current market value of an asset minus any outstanding debt against it. What you actually OWN of the asset.
Last reviewed: June 15, 2026 • Category: Finance