APR
APR (Annual Percentage Rate) is the cost of a loan expressed as a yearly percentage that includes both the interest rate and most fees. It's the number federal law requires lenders to disclose before you sign, and it's the most useful single number for comparing loan offers — though not the only number that matters.
APR is the federally mandated rate disclosure that tells you the all-in cost of borrowing on an annualized basis. It includes the interest rate plus origination fees, processing fees, and other prepaid finance charges. It excludes optional fees that depend on borrower behavior — late fees, NSF fees, and early payoff penalties — because those depend on what you do with the loan, not on the cost of the loan itself.
Why APR can be different from the interest rate
The interest rate is just the cost of borrowing the principal. APR includes that plus fees. So a loan with a 25% interest rate and a $50 origination fee on a $1,000 loan over 12 months has an APR around 35%: the fee makes the effective rate higher than the stated rate.
This is why federal Truth in Lending Act rules require APR disclosure: the interest rate alone hides the impact of fees, and APR forces lenders to express the full cost in a comparable way.
What APR doesn’t tell you
APR is normalized to a year, which means it doesn’t directly capture the difference between short and long loans. A 6-month loan at 100% APR has a lower total dollar cost than a 24-month loan at 60% APR for the same principal. When comparing loans with different terms, look at total dollar cost (the federally required Total of Payments figure) alongside APR.
For more on how APR works in practice, see our APR vs Interest Rate guide or use our APR calculator to verify a lender’s disclosure.