Lending term
APR
Annual Percentage Rate
Definition
The yearly cost of borrowing expressed as a percentage, combining the interest rate with most compulsory fees so that two offers can be compared on one number.
In more detail
APR exists because an interest rate alone does not describe what a loan costs. Arrangement fees, mandatory insurance, and account charges all change the amount a borrower actually pays, and a lender can lower a headline rate while recovering the difference in fees. Expressing everything as a single annualised percentage makes that trade-off visible.
What must be included in the calculation is set by regulation and differs between jurisdictions, so an APR quoted in one market is not automatically comparable with one quoted in another. Variable-rate products also assume the current rate continues for the full term, which is a modelling convention rather than a forecast.
Example
Two lenders both quote 6% interest on a 5-year personal loan. One charges no fee; the other charges a 3% arrangement fee. The second loan carries the higher APR even though the interest rates are identical.
Frequently asked questions
Is a lower APR always the cheaper loan?
Usually, but not always. APR annualises cost over the stated term, so a loan you intend to repay early may cost less in total under a different structure. Compare total amount repayable alongside APR.
Sources
- 01Consumer credit disclosure rules (jurisdiction-specific)
Glossary entries are general explanations, not advice. Where a term appears in a contract or policy, the definition in that document governs.