APR is a way of measuring the all-in costs a lender charges a borrower per year. If there are no fees, the APR equals the nominal interest rate. If there are fees, a loan’s APR is its nominal interest charges plus any “fine print” costs, such as:
- Origination fees
- Closing costs
- Monthly maintenance fees
- Guarantee fees
- Check processing fees
APR is shown as a percentage of the loan amount that you pay each year. The higher the APR, the more money you will pay back over the life of the loan. Personal loans, auto loans, and some student loans tend to use the simple interest method.
APR can help you decide which loans make the most sense for you by creating a level field to compare total borrowing costs. It helps you figure out whether to choose a financing plan with a higher nominal interest rate and lower upfront fees, or one with some extra fees upfront (such as points on a mortgage) that get you a lower interest rate. For more detailed APR information, see “What is APR and How to Calculate It.”