What Is APR?

Introduction

If you have ever looked at a credit card offer or a car loan, you have probably seen the letters APR. It stands for annual percentage rate, and it is one of the most important numbers to understand before you borrow money.

What APR Means

APR is the yearly cost of borrowing money, shown as a percentage. It includes the interest rate plus certain fees, which makes it a more complete picture than the interest rate alone. Lenders in the United States are required by law to show the APR so borrowers can compare offers fairly.

APR on Credit Cards

Credit cards often have APRs above 20%. If you pay your full balance every month, you usually will not pay any interest at all. But if you carry a balance, interest is added each month. On a $1,000 balance with a 24% APR, you could pay around $240 in interest over a year if you only make small payments. Cards may also have different APRs for purchases, cash advances, and balance transfers.

How to Use APR to Your Advantage

When comparing loans or cards, a lower APR means borrowing costs you less. Watch out for low introductory rates that jump after a few months. Building a strong credit score is one of the best ways to qualify for lower APRs in the future, which can save you thousands of dollars over your life.

Conclusion

APR might look like a small number in the fine print, but it has a big impact on how much you pay to borrow. Now that you know what it means, you can compare offers like a pro and keep more money in your pocket!