APR (Annual Percentage Rate) | Alphabet Soup of Money

Annual percentage rate (APR) refers to the yearly interest generated by a sum charged to borrowers or paid to investors. APR is expressed as a percentage that represents the actual annual cost of funds over the term of a loan or income earned on an investment.

The APR includes costs and fees associated with the transaction but doesn’t include compounding. The APR is an excellent tool for consumers to compare products among lenders and investments.

APR is a yearly rate charged for a loan or growth from an investment.

Financial institutions must declare the APR before any transaction is signed and completed. However, it may not represent total costs fully as financial institutions have some leeway in calculations, including specific fees.

APR can be a tool to help us determine an “apples to apples” comparison of rates. As always, it is our responsibility as consumers to pay attention to any extra fees that may not be included in the calculation. It is our responsibility to ask questions and commit to understanding the basics of the calculations.