APR Explained: What You NEED to Know About Loans and Credit Cards. APR stands for Annual Percentage Rate. It represents the annual cost of borrowing money or the annual return on an investment, expressed as a percentage. APR is commonly used for loans, credit cards, mortgages, and other types of credit products. It includes not only the interest rate but also any additional fees or costs associated with the loan, providing a more accurate measure of the true cost of borrowing.
Why APR Matters
- True Cost of Borrowing: Unlike the simple interest rate, APR gives a clearer picture of the total cost of borrowing over a year, helping you compare different loans or credit options.
- Comparison Shopping: When you’re comparing loans or credit cards, APR can help you determine which one is more affordable. Even if two loans have the same interest rate, their APRs might differ due to fees.
- Budgeting: Knowing the APR helps you understand how much you will need to repay and can influence your decision on whether a particular loan or credit product fits within your budget.
- Regulatory Requirement: Lenders are legally required to disclose the APR so that consumers have a standardized way to compare costs. This transparency helps prevent deceptive lending practices.
In summary, the APR matters because it gives you a fuller understanding of what you’ll pay, allowing for better-informed financial decisions.
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