Annual Percent Rate Definition

Annual Percentage Rate Definition or APR is a convenient way to look at the actual yearly cost of a credit card, auto loan or home loan. It is the annual rate that is charged to you, the borrower, for money lent. It is not just interest costs, but most costs, including all fees.

It is often challenging to compare one loan with another without using the very effective APR or Annual Percentage Rate. When using the APR, you are able to compare not only the interest rate of a loan, but also transaction fees, late fees, late penalties plus other factors. Under the law, banks and other loan issuers must show the APR or Annual Percentage Rate that is applicable to the agreement that they want you to sign. For example, if you are being charged 2 percent a month on a credit card balance, that APR is approximately 24%. That is heafty.

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