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Simple English definitions for legal terms
annual percentage rate (APR)
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A quick definition of annual percentage rate (APR):
Annual percentage rate (APR) is a number that tells you how much it will cost you to borrow money for a year. It includes the interest rate and any other fees you have to pay. APR is important because it helps you compare different loans and decide which one is the best for you. Think of it like a price tag on a loan - the higher the APR, the more expensive the loan will be.
A more thorough explanation:
An Annual Percentage Rate (APR) is the yearly cost of borrowing money or earning interest on an investment. It is expressed as a percentage and includes the interest rate and other fees associated with the transaction.
For example, if you borrow $1,000 with an APR of 10%, you will pay $100 in interest and fees over the course of a year. The APR takes into account the interest rate and any other charges, such as origination fees or closing costs, to give you a more accurate picture of the total cost of borrowing.
Another example is if you invest $1,000 in a savings account with an APR of 2%, you will earn $20 in interest over the course of a year. The APR helps you compare different investment options and choose the one that will give you the highest return.
Overall, the APR is an important factor to consider when borrowing or investing money because it gives you a clear understanding of the total cost or return over the course of a year.