Definition
The yearly cost of borrowing, including the interest rate and certain fees, shown as a percentage so loans can be compared.
What it means
The annual percentage rate, or APR, is the total yearly cost of credit. The federal Truth in Lending Act requires lenders to disclose it. For a mortgage, the APR includes the interest rate plus certain charges such as points and some lender fees, so it is usually higher than the note rate; the CFPB explains that comparing APRs helps you compare loans with different fee structures. For credit cards, the APR is generally the interest rate, and a card can have different APRs for purchases, balance transfers, cash advances and penalties. Many card APRs are variable and move with the prime rate. A loan with a low advertised rate but high fees can have a higher APR than one with a slightly higher rate and no fees.
Example
A $200,000 30-year mortgage at 6.50% with $4,000 in prepaid finance charges has an APR of about 6.69%, because the fees are spread over the loan.
Illustrative numbers only. Your situation will differ.