Annual percentage rate
Definition
Annual Percentage Rate (APR) is the annual rate charged for borrowing or earned through an investment, expressed as a percentage. It includes any fees or additional costs associated with the transaction.
5 Must Know Facts For Your Next Test
- APR is used to compare different loan offers by providing a standardized measure.
- APR takes into account interest rates and any other fees that might be applied over the year.
- A higher APR means more expensive borrowing costs over time.
- Credit card companies often use APR to advertise their interest rates.
- The formula for calculating APR can vary based on whether it's simple interest or compound interest.
Review Questions
- What components are included in the calculation of APR?
- How does APR help consumers compare loan offers?
- Why might two loans with the same interest rate have different APRs?
"Annual percentage rate" appears in:
Subjects (1)
Related terms
Simple Interest: Interest calculated on the principal portion of a loan or deposit.
Compound Interest: Interest calculated on both the initial principal and the accumulated interest from previous periods.
Nominal Interest Rate: The stated interest rate of a loan or bond, not accounting for compounding or fees.
