What "annual percentage rate" means in finance

Annual Percentage Rate (APR) is a standardized way of expressing the total cost of borrowing money over the course of a year. The APR includes the interest rate as well as any additional fees and charges that are associated with the loan, such as origination fees or closing costs.

The APR is typically higher than the nominal interest rate because it takes into account all of the costs associated with the loan. Lenders are required by law to disclose the APR to borrowers so that they can compare the cost of different loans more accurately. Borrowers can use the APR to determine the true cost of a loan and to make more informed decisions about borrowing money.

It's important to note that APR is not the same as the annual percentage yield (APY), which is the amount of interest that is earned on an investment over the course of a year. The APR is used for loans and credit products, while the APY is used for savings and investment products.