Annual Percentage Rate (APR)

Formal

This stands for the ‘Annual Percentage Rate’ of an interest charge. This is the true cost of borrowing funds with all the charges and hidden extras converted into an annual equivalent rate. These rates can then be compared on a uniform standard basis to determine the cheapest forms of finance.

Real-world Example

A credit card advertises a 0% introductory rate, but once annual fees and charges are folded in, its APR works out at 24.9% - the figure regulators require lenders to quote so shoppers can compare loans fairly.