Written by the Fiveable Content Team • Last updated August 2025
Written by the Fiveable Content Team • Last updated August 2025
Definition
The Annual Percentage Rate (APR) is the yearly interest rate charged on borrowed money or earned through an investment, expressed as a percentage. It includes fees or additional costs associated with the transaction.
APR can be calculated using the formula $APR = (1 + \frac{r}{n})^n - 1$, where $r$ is the nominal rate and $n$ is the number of compounding periods per year.
APR is used to compare different loan offers by providing a standardized measure of the cost of borrowing.
Higher APRs result in higher total interest paid over the life of a loan.
In exponential functions, APR can be represented as part of compound interest calculations using $A = P(1 + \frac{r}{n})^{nt}$.
Understanding APR helps in making informed financial decisions, such as choosing credit cards or loans.