What is Annual Percentage Rate?

Legal Definition
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, but in general:

  • The nominal APR is the simple-interest rate (for a year).
  • The effective APR is the fee+compound interest rate (calculated across a year).


In some areas, the annual percentage rate (APR) is the simplified counterpart to the effective interest rate that the borrower will pay on a loan. In many countries and jurisdictions, lenders (such as banks) are required to disclose the "cost" of borrowing in some standardized way as a form of consumer protection. The (effective) APR has been intended to make it easier to compare lenders and loan options.
-- Wikipedia
Legal Definition
The annual cost of a loan, which includes both interest on the loan, and loan-related fees. This is calculated by multiplying the interest rate per payment period by the number of the number of such payment periods in a year.
Legal Definition
A way to quote interest rate on loans. It is done when interest is done nonannually. It incldes all fees and remaining principal. Refer to add on loan.