APR
Also called: annual percentage rate
The yearly cost of borrowing including fees, meant to let you compare loans on one number.
APR exists because a headline interest rate can hide costs. It bundles the rate and compulsory fees into a single annual figure, so two offers can be compared honestly.
It is useful and imperfect. What must be included in the calculation varies by country, so an APR from one jurisdiction is not always comparable to another. Optional extras, late fees and some insurance may sit outside it. And a promotional rate can make the APR look better than what you will actually pay after the offer ends.
Two habits protect you. Compare APR to APR, never APR to a headline rate. And where lenders must disclose the total amount repayable, read that instead — it is a single figure in currency, with no percentages to misread.
Words on this page
- Expense ratio — The percentage of your money a fund charges each year, taken automatically whether it performs or not.
- The invisible leak — Investment fees — small, automatic, charged every year, and almost never noticed.
- Interest — The price of using someone else's money — paid by borrowers, earned by lenders.
- Interest rate — The price of borrowing money, or the reward for lending it, expressed as a percentage per year.
Related terms
Covered properly in Learn.