APR in plain English
APR stands for annual percentage rate. It expresses the cost of borrowing as an annual percentage under the applicable disclosure method. For many instalment loans, it reflects interest and certain additional charges. APR is not simply the nominal contractual interest rate, and it is not the total number of currency units repaid over the loan.
APR and interest rate are not the same thing
The interest rate describes the price charged on the outstanding balance according to the loan's pricing method. APR may incorporate certain additional charges into an annualized figure. Which charges are included, how cash flows are treated and which annualization method applies depend on the jurisdiction and the product. A UK representative APR, an Australian comparison rate and a Brazilian CET are not automatically comparable as if they used a single formula.
Why APR can be useful
Suppose two loans advertise the same interest rate but one has a large establishment fee. A broader annualized cost measure may make that difference easier to see. APR is therefore most useful when comparing products with a similar amount, term and repayment pattern. An advertised or representative APR may differ from an applicant's final offer; compare the provider's actual disclosure and total repayments as well.
What APR does not tell you
- Whether you will be approved.
- Whether the rate offered to you will match an advertised example.
- How flexible the lender is about early repayment.
- Whether the loan term matches your circumstances.
- Every possible charge under every scenario.
Comparison rule
Use APR as one input, not the only input. Read the fee schedule, repayment terms and the provider's current disclosure. If a product does not publish APR, compare the available rate and fee information carefully rather than trying to invent an equivalent figure.