APR (Annual Percentage Rate)
The annualized cost of borrowing expressed as a percentage, including interest and mandatory fees, used to compare loan products.
APR provides a standardized way to compare the true cost of loans, credit cards, and mortgages. Unlike the nominal interest rate, APR includes origination fees, closing costs, and other mandatory charges. In the EU, this is known as APRC (Annual Percentage Rate of Charge) or RPSN in Czech Republic. Credit card APRs typically range from 15%–25%, personal loans from 5%–15%, and mortgages from 3%–7% depending on market conditions. A lower APR always means a cheaper loan when comparing similar products. However, APR doesn't account for compounding frequency — the effective annual rate (EAR) is more precise for comparison.
Example
Loan A: 5.0% interest rate + $2,000 in fees on a $100,000 loan = 5.4% APR. Loan B: 5.2% interest rate + $500 in fees = 5.3% APR. Loan B is cheaper despite the higher rate.
Related terms
Interest Rate
The percentage charged on borrowed money or earned on deposited/invested money, expressed as an annual rate.
Mortgage
A long-term loan secured by real property, used to finance the purchase of a home or investment property, typically repaid over 15–30 years.
Debt-to-Income Ratio
The percentage of your gross monthly income that goes toward debt payments, used by lenders to assess borrowing capacity.
Explore more terms
Amortization
The process of gradually paying off a loan through regular payments that cover both principal and interest, with early payments being mostly interest.
Overdraft
A credit facility that lets you spend more than your account balance, up to an agreed limit, for a fee or interest.
Creditworthiness
A lender's assessment of how likely you are to repay borrowed money, based on income, debts, and payment history.
Refinancing
Replacing an existing loan with a new one, usually to secure a lower interest rate or better terms.
Debt Consolidation
Combining several debts into a single loan, ideally with a lower interest rate and one monthly payment.
Annuity Payment (Installment)
A fixed regular payment that fully repays a loan over its term, blending interest and principal in each instalment.