APR

Annual Percentage Rate

The yearly cost of borrowing money expressed as a percentage. It represents the total interest and fees a borrower will pay on a loan, credit card, or mortgage over a year. Unlike the Annual Percentage Yield (APY), APR does not account for compound interest.

How APR Works

APR is calculated using the following formula:

Where:

• Interest = The total interest paid over the loan term
• Fees = Any additional charges or fees included in the loan
• Principal = The original loan amount

For example, if you borrow $10,000 with an APR of 5%, you will owe $500 in interest per year, assuming no additional fees or compounding.

Types of APR

1. Fixed APR – Stays the same throughout the loan period, making payments predictable.
2. Variable APR – Changes based on market interest rates, meaning your payments can fluctuate over time.
3. Introductory APR – A temporary low or 0% interest rate offered for a limited period (common in credit cards).
4. Purchase APR – The interest rate applied to purchases made with a credit card if the balance isn’t paid in full each month.
5. Cash Advance APR – A higher interest rate charged when withdrawing cash from a credit card.

Many people confuse APR (Annual Percentage Rate) and APY (Annual Percentage Yield), but they serve different purposes:

If you’re borrowing money, a lower APR is better because it means you’ll pay less in interest. If you’re saving money, a higher APY is better because it means your savings will grow faster.

Why APR Matters

Understanding APR is crucial when comparing loans, credit cards, and mortgages. A lower APR means lower borrowing costs over time. Always check whether the APR includes fees and whether it is fixed or variable before taking out a loan.

When shopping for a loan or credit card, always compare APR rates to find the best deal and avoid paying unnecessary interest!

Additional Acronyms for APR

• APR - Accreditation in Public Relations