What does APR stand for, and why is it important?

APR stands for Annual Percentage Rate, and it is a crucial measure in the world of finance because it represents the total cost of borrowing money on a yearly basis expressed as a percentage. This includes not only the interest rate charged on the principal amount but also any additional fees or costs associated with the loan. By providing a standardized way to evaluate the cost of different loans, APR allows borrowers to compare offers effectively. A lower APR generally means that the cost of borrowing is less, making it a significant factor for making informed financial decisions.

Understanding APR helps consumers gauge the long-term expenses involved in borrowing, as it encapsulates the yearly cost rather than just highlighting the interest rate alone. This is particularly important when considering loans, credit cards, or mortgages, where varying rates and fees can significantly impact total repayment amounts over time.