What Is APR? A Guide for Normal, Non-Finance Folks

article by Foster I. author
If you’ve looked into getting an online loan, chances are you’ve noticed these pesky letters: APR. But unless you work in finance, or are a real numbers geek, you likely have no idea what those letters actually mean!

APR stands for ‘Annual Percentage Rate’, and is a really important idea to understand when applying for a secured or unsecured loan.

What APR Is All About

Since lenders need to make money somehow, they charge borrowers interest in return for lending them money. The APR is a calculation of how much the borrower will end up paying annually on top of the monthly payments to cover repaying the loan itself. It includes:

  • The loan’s interest rate
  • Any fees that the lender charges
  • Anything else the borrower is obligated to sign up for and pay within the terms of the loan

These figures are added together and their sum is the loan’s APR. If the loan is going to last longer than a year (which most do), then the lender will assign the average as the loan’s APR.

Why you Need to Know More About APR

APR is a very important factor that prospective borrowers need to consider when choosing a lender for an online personal loan. The higher the APR, the more you will end up paying in the long run, so you want to look for lenders who will offer you a lower APR. You can compare different lenders based on the APRs to see which is the best deal for you.

APR table


What Affects APR?

There are several factors that will make a borrower’s APR higher or lower. Some of them are:

  • Credit history
  • Loan amount
  • Length of repayment time
  • Your own history with the lender


Understanding Fixed vs. Variable APRs

There are differences in the types of APRs also. Fixed APRs, as you might have guessed, are a fixed rate that is unchanging regardless of circumstances (unless you miss payments). This is typical for a credit card. Variable APRs, on the other hand, will fluctuate based on more global trends. Things like national rates and economic trends will actually raise or lower your APR. Deciding which is the better choice really depends on the environment you’re borrowing in. If rates are low at the moment but likely to rise soon, lock in a fixed rate, in order to avoid paying more over time. Of course, if interest rates are falling, you can save a lot of money by opting for a variable APR that’ll only decrease as the interest rates do.

There are also terms like penalty, introductory, representative, and typical APR. These are different types of APRs with varying factors affecting the overall amount. For example, an introductory APR is given to encourage borrowers to open this line of credit. It will generally be lower than the standard APR, and it will increase after a specified period of time (minimum of six months by law).

Here is a good example of how APR works in the real world:

Loan Tenor


Understanding what APR is, what factors affect it, and what it will cost you is critical if you hope to save on your next online loan. Compare APRs from different lenders, and find the personal loan that will cost you the least over time.