Annual Percentage Rate - APR definitionEdit
The annual rate that is charged for borrowing (or made byinvesting), expressed as a single percentage number that represents the actual yearly cost of funds over the term of a loan.This includes any fees or additional costs associated with thetransaction.
Loans or credit agreements can vary in terms of interest-ratestructure, transaction fees, late penalties and other factors. Astandardized computation such as the APR provides borrowers witha bottom-line number they can easily compare to rates charged byother potential lenders.
By law, credit card companies and loan issuers must showcustomers the APR to facilitate a clear understanding of the actualrates applicable to their agreements. Credit card companies areallowed advertise interest rates on a monthly basis (e.g. 2% permonth), but are also required to clearly state the APR to customersbefore any agreement is signed. For example, a credit cardcompany might charge 1% a month, but the APR is 1% x 12months = 12%. This differs from annual percentage yield, which also takes compound interest into account.
See also: Annual Percentage Yield - APY, Annualize, Compound Interest, Credit Card, Yield
Also spelled: APR
|APR the annual equivalent of a rate of interest when the rate isquoted more frequently than annually, usually monthly|