Everyday Math

Math and the Consumer’s Money

What is the Annual Percentage Rate, or APR?

The Annual Percentage Rate (APR) is an expression of the yearly interest rate that will be paid on a loan (which includes credit cards). It differs from the advertised interest rate, as it includes one-time fees in an attempt to calculate the “total cost” of borrowing the money. Therefore, it is wise to always look for a low APR. Because lenders are required to disclose the APR before a loan or credit application is finalized, it makes it easier to compare lenders. For example, if a person borrows $100 for one year at 5 percent simple interest (they will owe $105 at the end of the year), and the lender charges a $5.00 fee, the total cost to borrow the money will actually be $10, meaning the APR is 10 percent.


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