Understanding APR
APR (Annual Percentage Rate) is the yearly cost of borrowing, expressed as a percentage — and it's not quite the same thing as the interest rate advertised on a loan or card.
APR vs. Interest Rate — The Key Distinction
The interest rate is simply the cost of borrowing the principal. APR includes the interest rate plus certain fees (like origination fees), rolled into a single annualized percentage — which is why APR is usually equal to or higher than the stated interest rate.
Why APR Matters When Comparing Loans or Cards
Two loans with identical interest rates can have very different APRs once fees are factored in. When comparing a debt consolidation loan or a balance transfer card, APR is the more accurate apples-to-apples comparison than the advertised rate alone.