In general, credit loans — for instance, a home mortgage, personal loan or a car loan — will apply an annual percentage rate (APR) to set the cost of the loan (the interest owed plus any additional fees). The APR is a regulated rate, letting you compare more easily costs over various loan choices. Take careful note that the APR does not normally have the same value as the loan interest rate. Several factors can affect the cost of a loan, with interest rate being only one of them. An APR takes into account all these factors, such as whether the rate is compounded or simple interest, if there is any extra loan fees, and the loan period.
The term annual percentage rate of charge (APR), corresponding sometimes to a nominal APR and sometimes to an effective APR (or EAPR),describes the interest rate for a whole year (annualized), rather than just a monthly fee/rate, as applied on a loan, mortgage loan, credit card, etc. It is a finance charge expressed as an annual rate. Those terms have formal, legal definitions in some countries or legal jurisdictions.
A standard calculation used by lenders. It is designed to help borrowers compare different loan options. For example, a loan with a lower stated interest rate may be a bad value if its fees are too high. Likewise, a loan with a higher stated rate with very low fees could be an exceptional value. APR calculations incorporate these fees into a single rate. You can then compare loans with different fees, rates or different terms.
Interest rates indicate the price at which you can borrow money. It can get seriously complicated, with many anomalies, so for starters this guide covers the basics first. If you want to know all there is to know, then step it up a notch and read to the end. If it gets too much, just stop – understanding the basics alone is the most important bit!