What is an annual percentage rate?

An annual percentage rate is used to refer to the yearly fee that a customer pays for borrowing money and is often called APR. An APR is most commonly used in cases of loans, credit cards or other credit agreements.

United States law requires that lenders disclose the APR to the customer before the credit agreement between the two parties is signed. Only credit card companies can break the APR down into a monthly basis, but they must still disclose the yearly cost associated with their product. Consumers can then compare APRs between multiple lenders to determine the best option for their budget.