APR (Annual Percentage Rate)

APR (Annual Percentage Rate) is the total cost of borrowing money, expressed as a yearly percentage. It includes the interest rate and any additional fees charged by the lender, giving borrowers a clear picture of the true cost of a loan or credit product.

Example #1

For a $10,000 loan with an APR of 5%, the total cost to borrow would be $500 for one year, in addition to any fees.

Example #2

On a credit card with an APR of 18%, if you carry a $1,000 balance for a year, you would pay $180 in interest, excluding any other charges.

Misuse

Misuse of APR can happen when lenders advertise low APRs without disclosing additional fees or conditions. This can deceive consumers into thinking they are getting a better deal than they actually are. It is important to protect against this misuse by ensuring transparency and full disclosure of all costs associated with borrowing.

Benefits

The benefit of APR is that it allows consumers to compare the costs of different loan or credit options more easily. By considering the APR, borrowers can make informed decisions and choose the most cost-effective option for their needs.

Conclusion

Understanding APR empowers consumers to make informed borrowing choices while promoting transparency and fairness in lending practices. By ensuring clear disclosure and comparison of APR, consumers can protect themselves from misleading offers and select the best financial products for their circumstances.

Related Terms

Interest RateLoanCredit ScoreCredit CardDebt-to-Income Ratio