APR (Annual Percentage Rate)
APR is the yearly cost of borrowing money, expressed as a percentage that includes both the interest rate and mandatory fees like origination charges. Because it bundles fees in, APR is the number to compare across loan offers — a lower APR means a cheaper loan overall.
For a loan with no fees, APR equals the interest rate; when fees exist it is higher, which is why the Truth in Lending Act requires it. Two limits are worth knowing. On a credit card, APR ignores compounding within the year, so a card quoted at 22.99% and compounding daily actually costs about 25.84% — roughly $1,292 on a $5,000 balance rather than the $1,150 the headline implies. It is the one consumer figure that systematically understates the cost. On a mortgage, APR spreads points and fees across the entire term, so it flatters a loan you will not hold that long; comparing total cost over your realistic holding period is more honest than comparing APR.
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