What does APR mean when buying a car?

The APR, or annual percentage rate, is the effective rate on the net proceeds of a loan. It represents the total costs of borrowing, taking into account charges and upfront costs.

The annual percentage rate is slightly different from the interest rate because one-time charges, transaction costs and fees impact the APR. The interest rate does not include these transaction costs. The APR is only equal to the interest rate if there are no closing costs. APR is calculated by subtracting lender fees and transaction costs from the total loan amount to calculate the loan benefit to the borrower, then determining the cost of the interest payments in relation to the loan benefit.