What is an Annual Percentage Rate (APR)? Definition or Meaning

Rather than make customers read the fine print and add up all interest rates and fees on a loan, credit card or other financial product, an Annual Percentage Rate or APR does all the work for you. An APR is a combination of all fees and interest rates charged or paid by a financial product annually. Credit card companies are required by law to advertise this to avoid any confusion.

For example…

Let’s take Rachel’s fruit shop. She has issued her employees with company credit cards to go and purchase fresh produce from markets. Some of her employees’ credit card has a monthly rate of one point five percent. The rest have a monthly rate of one point seven percent. Expressed as a percentage, the first credit card company’s APR is eighteen percent whereas the second charge a slightly higher rate at twenty-one point six percent.