APR (Annual Percentage Rate)
Definition
The yearly cost of a loan or credit line, expressed as a percentage. APR includes the interest rate plus fees and other costs, so it's more complete than just the interest rate alone. When a credit card says 18% APR, you're paying about 1.5% per month.
Why It Matters
APR is crucial for comparing loans and credit products. Two loans might have similar interest rates but different APRs because one has higher fees. Always compare APRs, not just rates, when shopping for mortgages, credit cards, or personal loans.
Example
A credit card charges 18% APR on a $1,000 balance. If you pay minimum payments (usually 2-3% of the balance), it'll take you ~5 years to pay off and you'll pay ~$500 in interest.