What is an Annual Percentage Rate?
Annual Percentage Rate (APR) provides a number that can be compared among lenders, credit cards, or investment solutions.
The APR is the yearly interest generated by a sum that's charged to borrowers or paid to investors. APR is a percentage that represents the actual yearly cost of funds over the term of a loan or income earned on an investment and includes any fees or additional costs associated with the transaction. However, it does not take compounding into account as it is assumed that interest is paid at predetermined intervals (weekly/monthly).
Financial institutions must disclose the APR before entering into an agreement. However, an APR may not reflect the full costs of the loan as lenders are given an amount of leeway in calculating it, excluding certain fees.