What is APR? Interest rate, APR and APY explained

Loans and debt · 3 min read · Updated 1 November 2026

In short: APR (annual percentage rate) is the yearly cost of borrowing, shown as a percentage. For loans it includes the interest rate and certain fees, so it is usually the best single number for comparing offers. On credit cards the APR is the interest rate. APY is different: it is what you earn on savings.

Interest rate vs APR

Interest rate: the yearly cost of the money you borrow, as a percentage of what you owe.
APR: the interest rate plus certain fees, such as loan origination fees, spread over the loan. US lenders must show the APR under the Truth in Lending Act.

Two loans with the same interest rate can have different APRs because of fees. The one with the lower APR usually costs less overall, if the length is the same.

A worked example

You borrow $5,000 for 1 year at a 10% interest rate. The monthly payment is about $439.58. If the lender also takes a $250 fee out of the loan, you only receive $4,750 but still repay the full amount. That makes the APR about 19.8%, nearly double the interest rate. Fees matter most on short loans. Figures are rounded and for illustration only.

APR on credit cards

On a credit card, the APR is the interest rate, and a card can have several:

Purchase APR for everyday spending.
Balance transfer APR, sometimes 0% for an introductory period.
Cash advance APR, usually higher, with no grace period.
Penalty APR, which can apply if you pay late.

If you pay the full statement balance each month, the purchase APR usually doesn't matter because the grace period means no interest. See Credit card basics.

Fixed or variable APR

A fixed APR stays the same unless the lender gives notice of a change under the rules. A variable APR is tied to an index, usually the prime rate, and moves with it. Most credit cards have variable APRs.

APR vs APY

APR and APY compared
	APR	APY
Used for	Loans and credit cards	Savings and CDs
Means	What you pay to borrow	What you earn, with compounding
You want it	Lower	Higher

Why a payday loan's APR looks so high

A fee of $15 for every $100 borrowed for two weeks sounds small, but as a yearly rate it is an APR of almost 400%. That is why APR helps compare very different kinds of credit. See Payday loans and safer alternatives.

Handy tools

Loan and EMI calculator: monthly payment, total interest and a year-by-year table.

General information, not financial advice. Rules, fees and rates change and depend on your situation. Check with your bank, the provider or a qualified professional before you decide.