APR

Definition:

APR stands for “annual percentage rate.” It is the annual rate of interest charged to a borrower, including any additional fees or financing costs associated with a transaction, but excluding any impact of compounding.

Example:

We refinanced to a 30-year mortgage with an interest rate of 2.8%, but after closing costs and origination fees, the APR was 2.95%.

More Information:

The APR is higher than the quoted interest rate due to the inclusion of fees and transaction costs and is a more accurate way of comparing loan options to find which is the most cost-effective.

If you want to account for the impact of compounding in the cost as well, please see APY (annual percentage yield).