Glossary term
APR (Annual Percentage Rate)
APR is the yearly cost of borrowing expressed as a single percentage that includes the interest rate plus certain required fees, such as origination charges. Because lenders must calculate it the same way under federal Truth in Lending rules, APR lets you compare loan offers on an even footing.
Updated October 17, 2026 · Editorial Team
How APR (Annual Percentage Rate) works in practice
APR starts with the note rate on your loan and folds in finance charges you pay to get the credit, such as an origination fee. Those fees shrink the cash you actually receive, so the real yearly cost of the money is higher than the quoted rate. The APR is the rate that makes your scheduled payments equal the amount you really walk away with.
Say you borrow $20,000 for 60 months at 7.00% and pay a $500 origination fee. The payment on $20,000 is $396.02 a month, and total interest is $3,761.20. But you only net $19,500. Solving for the rate at which $396.02 a month for 60 months repays $19,500 gives an APR of about 8.07%, roughly a full point above the note rate.
For credit cards, the APR and the interest rate are usually the same number, because cards rarely charge upfront finance fees. For installment loans, comparing APRs is the quickest way to see whether a low advertised rate is hiding fees. Keep in mind that APR does not capture everything, such as late fees or optional add-ons.
APR (Annual Percentage Rate): quick questions
Is APR the same as the interest rate?
Not always. The interest rate is what you pay on the balance; APR adds required finance fees. On a loan with no fees the two match, and on most credit cards they are the same figure.
Why is my APR higher than my rate?
Because fees such as an origination charge reduce the money you receive while your payments stay the same. Spreading that cost over the loan pushes the effective yearly rate above the note rate.
Does a lower APR always mean a cheaper loan?
Usually, for loans of the same amount and term. If the terms differ, compare total cost too, because a longer loan at a lower APR can still cost more interest overall.
Sources
- Regulation Z (Truth in Lending), 12 CFR Part 1026 — Consumer Financial Protection Bureau. Accessed October 17, 2026.
- Credit cards — Consumer Financial Protection Bureau. Accessed October 17, 2026.
We cite primary sources: regulators, central-bank data and federal agencies. Worked examples on this page are our own calculations. See our methodology.
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