APR (Annual Percentage Rate)

APR, or Annual Percentage Rate, is the total cost of borrowing money, including interest and additional fees, expressed as a yearly percentage. It gives consumers a standardized way to compare the cost of loans or credit cards from different lenders.

Example #1

For example, if you borrow $1,000 with an APR of 10%, the total cost of borrowing for one year would be $100 (10% of $1,000). This means you would repay $1,100 in total.

Example #2

Another example is comparing two credit card offers: Card A has an APR of 15% and Card B has an APR of 20%. Card A would be cheaper to borrow from over a year, assuming all other terms are the same.

Misuse

Misuse of APR can occur when lenders advertise low APR rates without disclosing additional fees or terms that significantly increase the total cost of borrowing. This lack of transparency can mislead consumers into thinking they are getting a better deal than they actually are. It's important to protect against misuse by demanding clear and full disclosure of all costs associated with borrowing.

Benefits

The benefit of APR is that it allows consumers to make informed decisions about borrowing money by giving them a clear understanding of the total cost involved. By knowing the APR, consumers can compare offers and choose the most cost-effective option.

Conclusion

Understanding APR is crucial for consumers to avoid falling into costly debt traps. By comparing APR rates, consumers can make informed decisions and protect themselves from misleading advertising practices.

Related Terms

Interest RateCredit ScoreLoanMortgageDefault