APR (Annual Percentage Rate)

APR is designed to make loans comparable. It rolls the stated interest rate together with points, origination charges, and other required lender fees into a single annual percentage.

Because it captures fees, the APR on a loan is normally higher than its interest rate. Two loans quoting the same rate can have very different APRs — that gap is the fee load.

Lenders in the US are required to disclose APR, which makes it the most useful single number for comparing offers. It has limits, though: it assumes you hold the loan for its full term, so a low-rate/high-fee loan can look better by APR than it will actually be if you refinance or sell early.

On credit cards, APR works differently — there are typically no upfront fees, so the purchase APR is effectively just the annualized interest rate, and cards often carry separate APRs for purchases, balance transfers, and cash advances.