Annual Percentage Rate (APR)
APR is the yearly cost of a loan expressed as a percentage, including the interest rate plus certain fees and closing costs. Because it folds in those costs, APR is usually higher than the quoted interest rate and makes loan offers easier to compare.
The interest rate is the cost of borrowing the principal alone. APR is broader: it also reflects points, origination fees, and other lender charges, then spreads them across the life of the loan as a single annual percentage. That makes APR a more complete measure of what a loan actually costs.
Two offers can share the same interest rate but have different APRs because one charges more upfront fees. Comparing APRs helps you see past a low headline rate. The catch is that APR assumes you keep the loan for its full term, so if you expect to sell or refinance early, the upfront fees weigh more heavily than the APR suggests.
Used in these calculators
Guides that put this term to work
Related terms: Amortization , Private Mortgage Insurance (PMI)
Source: Consumer Financial Protection Bureau, Loan options and costs
Last updated . Part of the FinExplained finance glossary .