Glossary
APR (Annual Percentage Rate)
The yearly cost of borrowing money, including interest and certain fees, expressed as one percentage for comparing loan offers.
APR — annual percentage rate — is the law’s answer to a real problem: lenders used to advertise low interest rates while hiding the cost in fees. The Truth in Lending Act requires every consumer loan offer to disclose a single yearly percentage that folds in the interest rate plus certain mandatory fees (like origination charges), so two offers can be compared on one number.
For loans without significant fees, APR and the interest rate are nearly identical. The gap between them is a fee detector: a personal loan quoting a 10.5% rate but a 13.1% APR is telling you the fees are substantial.
Two cautions. First, APR on a mortgage assumes you keep the loan for its full term — if you sell or refinance in five years, the upfront fees spread over fewer years, and the effective cost is higher than the quoted APR. Second, APR is a borrowing measure; its savings-account cousin is APY, which works in your favor rather than against you.
For credit cards, APR is the rate applied to carried balances — pay in full each month and the APR, however high, costs you nothing.
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