APR — Annual Percentage Rate
APR is the true annual cost of a loan or credit product, expressed as a single percentage. Unlike a simple interest rate, APR includes origination fees, broker fees, mortgage points, and other mandatory charges, making it a more accurate comparison tool.
APR vs. Interest Rate
| Feature | Interest Rate | APR | |---------|--------------|-----| | Reflects base cost only | ✅ | ❌ | | Includes fees | ❌ | ✅ | | Best for comparing lenders | ❌ | ✅ |
Example
Lender A offers a 6.0% interest rate with $3,000 in origination fees on a $200,000 mortgage. Lender B offers 6.2% with no fees.
- Lender A's APR ≈ 6.3% (fees raise the effective cost)
- Lender B's APR = 6.2%
Despite the lower interest rate, Lender A is more expensive when total borrowing costs are considered.
APR vs. APY
- APR = the rate lenders advertise (borrowing side)
- APY (Annual Percentage Yield) = the rate savings accounts advertise (earning side); APY accounts for compounding, APR typically does not
Related Tools
- Mortgage Calculator — Calculate total loan cost including fees.
- Loan Amortization — See how APR affects your full payment schedule.
- Financial Glossary — Explore more key finance terms.