APR stands for Annual Percentage Rate. It represents the yearly cost of borrowing money or the yearly return on an investment, expressed as a percentage. APR includes not only the interest rate but also any fees or additional costs associated with the loan or credit product, providing a clearer picture of the total cost over a year
. Key points about APR:
- It is the annual rate charged for borrowing or earned through an investment, including interest and fees but excluding compounding interest
- APR helps consumers compare different loans or credit cards by showing the overall yearly cost, including fees
- It differs from the simple interest rate because it incorporates fees and other charges, making it a more comprehensive measure of cost
- APR may be fixed or variable, depending on the loan or credit product
- The Truth in Lending Act requires lenders to disclose APR before agreements are signed, ensuring transparency
In summary, APR is a standardized way to understand and compare the true cost of borrowing money over a year, including interest and fees.
