Annual Percentage Rate

Business, Legal & Accounting Glossary

Definition: Annual Percentage Rate

Annual Percentage Rate

Quick Summary of Annual Percentage Rate

APR. The yearly cost of a mortgage, including interest, mortgage insurance, and the origination fee (points), expressed as a percentage. The annual percentage rate can be looked at in two primary ways: the nominal rate, which is a non-adjusted simple interest rate, or the effective rate, which takes compound interest into account. While the nominal rate is relatively straightforward, there can be many different ways of calculating the effective rate, depending upon how fees are factored into the equation. For more information, see: Difference Between Interest Rate and APR.

What is the dictionary definition of Annual Percentage Rate?

Dictionary Definition

The annual equivalent rate of return on a loan or investment in which the rate of interest and charges are specified in terms of an annual rate of interest.

Most investment institutions are now required by law to specify the APR when the interest intervals are more frequent than annually.

Full Definition of Annual Percentage Rate

The actual cost of borrowing money, expressed in the form of a yearly measure to allow consumers to compare the cost of borrowing money among several lenders.

An annual percentage rate often referred to by its acronym APR, is the yearly interest due on a loan, including interest and other fees, expressed as a percentage of the amount borrowed. Because the annual percentage rate incorporates all fees associated with the loan, the annual percentage rate can be used to determine the true cost of borrowing a given amount of money. The annual percentage rate is important as a standardized measure of the cost of borrowing money; the annual percentage rate allows for the comparability of interest rates across lenders. In fact, lenders are required by law to tell borrowers what their annual percentage rate would be on a loan. The annual percentage rate is calculated by multiplying the periodic interest rate by the number of periods in a year.

The annual percentage rate is only one of a number of interest rates you may see quoted. It is also likely to be the highest of them.

Personal loans, credit cards, mortgages, and overdrafts may all be quoted at introductory rates of interest that sound enticingly cheap. However, what the introductory rates fail to include are any arrangement fees you may be charged for loans and they also won’t immediately reflect any higher rate of interest that your borrowings will ultimately revert to.

This is where the APR comes in. It was originally introduced as part of the Consumer Credit Act of 1974.

The headline quoted rate on loans and credit cards may be the rate of interest you pay per month or per year, but it’s the APR figures (usually shown in brackets) which calculate the total amount of interest that will be paid over the whole term of the loan.

The APR should also take into account any other charges which the borrower has to pay. So, if you see a ‘too good to be true’ loan offer, fixed at a surprisingly low rate for a short period of time, ask yourself how much it could really cost by checking out the APR ‘ it is likely to be substantially higher.

The annual equivalent rate of return on a loan or investment in which the rate of interest and charges are specified in terms of an annual rate of interest.


Examples of Annual Percentage Rate in a sentence

If you have a good credit rating, you may be able to get your credit card company to lower the annual percentage rate on your account.

Because this business has no problem with liquidity, and has a good relationship with its local suppliers, they are able to offer a very low annual percentage rate to customer who purchase the larger-ticket items.

The interest percentage of a loan, including all finance charges and other payments and credits, averaged over the course of a year.

Synonyms For Annual Percentage Rate


Cite Term

To help you cite our definitions in your bibliography, here is the proper citation layout for the three major formatting styles, with all of the relevant information filled in.

Page URL
Modern Language Association (MLA):
Annual Percentage Rate. Payroll & Accounting Heaven Ltd.
December 03, 2021
Chicago Manual of Style (CMS):
Annual Percentage Rate. Payroll & Accounting Heaven Ltd. (accessed: December 03, 2021).
American Psychological Association (APA):
Annual Percentage Rate. Retrieved December 03, 2021
, from website:

Definition Sources

Definitions for Annual Percentage Rate are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 19th November, 2021 | 0 Views.