What Is APR? The Real Cost of Borrowing Explained
APR stands for Annual Percentage Rate — the total yearly cost of borrowing, expressed as a percentage. It includes not just the interest rate, but also most fees and charges rolled into one number.
APR vs interest rate
The interest rate is only the price of borrowing the money itself. The APR adds lender fees, points, and certain closing costs — so APR is almost always slightly higher than the interest rate. That's the point: APR lets you compare loans fairly.
Example: Loan A at 6.5% interest + $3,000 fees might have a 6.72% APR.
Loan B at 6.6% interest + $500 fees might have a 6.65% APR → cheaper overall!
Loan B at 6.6% interest + $500 fees might have a 6.65% APR → cheaper overall!
Why APR matters
- Comparing loans: always compare APR to APR, not interest rate to APR.
- Credit cards: the APR is what turns a $5,000 balance into $6,200 of payments.
- The catch: APR assumes you keep the loan full term. If you'll refinance or sell in 3 years, upfront fees matter more than APR suggests.
Common APR ranges (US, approximate)
- Mortgages: 6–7.5%
- Auto loans: 5–12% (by credit score)
- Personal loans: 8–25%
- Credit cards: 20–30%
Try our mortgage calculator or credit card payoff calculator to see APR in action.