What is an APR?

Answer 1

The Annual Percentage Rate (APR) is a measure of the cost of credit, expressed as a yearly rate. It must be disclosed before you become obligated on the account and on your account statements. The issuer also must disclose the "periodic rate" -- the rate applied to your outstanding balance to figure the finance charge for each billing period. (For more about balance computation methods, click here.) Some credit card plans allow the issuer to change your APR when interest rates or other economic indicators -- called indexes -- change. Because the credit card rate change is linked to the index's performance, these plans are called "variable rate" programs. Rate changes raise or lower the finance charge on your account. If you're considering a card with a variable APR, the issuer must also provide various information that discloses to you: that the APR may change; and how the rate is determined -- which index is used and what additional amount, the "margin," is added to determine your new rate. You also must receive information -- before you become obligated on the account -- about any limitations on how much and how often your credit card rate may change. Keep in mind that your credit card APR can often be negotiated with the issuer. If you feel that your APR is too high, it does not hurt to ask the company to lower it.

Answer 2

The simplified counterpart to the effective interest rate that the borrower will pay on a loan.

In many countries and jurisdictions, lenders (such as banks) are required to disclose the "cost" of borrowing in some standardized way as a form of consumer protection. APR is intended to make it easier to compare lenders and loan options.

APRs can be found by asking the lender or by reading the appropriate section in the contract.