APR (Annual Percentage Rate)
The yearly cost of a loan expressed as a percentage, including interest and certain fees. Higher APR = more expensive loan.
Reviewed May 2026.
APR is what most people mean when they say 'the rate.' On a loan, it tells you how much you pay per year for the privilege of borrowing — but it includes more than the raw interest rate. Federal law (Truth in Lending Act) requires lenders to disclose APR so you can compare loans apples-to-apples.
For most personal, auto, and mortgage loans, APR includes the interest rate plus origination fees and certain points. It does NOT include third-party costs (appraisal, title insurance, taxes). For credit cards, APR is purely the interest rate; fees aren't rolled in.
A loan with a 7% interest rate and a 1% origination fee won't have a 7% APR — it'll be slightly higher. The exact difference depends on the term: shorter terms amplify the fee's effect on APR.
PayoffMath angle. On a prepayment decision, APR — not the stated rate — is the right hurdle to compare against alternative uses of cash. A high-APR loan deserves prepay over investing; a low-APR one usually doesn't.
Why it matters. APR is the only fair number to compare two loan offers. Stated interest rate alone can hide the true cost when fees are involved.
Common mistake. Comparing loans by rate alone. A 6.5% loan with a 3% origination fee can be more expensive than a 7.5% no-fee loan — APR catches the difference, the rate doesn't.
Try the effective apr calculator → — compare any rate+fee combination against any no-fee offer.
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Sources and review
Reviewed May 2026. Glossary entries are plain-language definitions, not legal definitions. For account-specific rules, your loan documents control.
Definition by James L. Wu. Plain-language gloss, not a legal definition. For terms that show up in your loan paperwork, the governing language is in your loan documents. See the editorial policy for sourcing.