Annual Percentage Rate (APR)
Annual Percentage Rate, or APR, is a term used to describe the interest rate associated with a loan. It is expressed as an annualized percentage of the total amount borrowed and takes into account both the interest rate charged by the lender and any additional fees or costs that are part of the loan agreement. APR measures not only how much it will cost you to borrow money, but also other charges such as closing costs, late payment fees and more.
The APR helps borrowers compare various offers from different lenders in order to make an informed decision about which loan offer best meets their needs. When comparing two loans with different terms like fixed-rate versus adjustable-rate mortgages, looking at just the interest rates can be misleading because they may differ significantly over time due to changes in market conditions. The APR includes all of these factors so that borrowers can get an accurate picture of what their true cost for borrowing will be over time.
In addition to helping consumers understand what their actual cost for borrowing money is going to be over time, lenders must disclose this information according to federal truth in lending laws designed to protect consumers against unfair lending practices. This means that when shopping around for a loan product like a mortgage or car loan, it’s important not just look at advertised rates but also ask potential lenders directly about their APRs so you can compare apples-to-apples across multiple offers before making your final decision on which one works best for your situation.
