Annual Percentage Rate (APR)

The annual percentage rate, known as APR for short, refers to the annual rate of interest a borrower pays. This is a single percentage rate that represents the annual cost of the loan over the loan period. This annual rate can refer to the rate charged on a mortgage or on a credit card. Laws stipulate that lenders must provide this information to the borrower before they sign loan documents. This allows the borrower to compare rates between lenders. There are multiple ways of calculating annual percentage rate. In the United States, the government regulates this calculation through the Truth in Lending Act. This Act of Congress requires lenders to compute this number by multiplying the periodic interest rate by the number of annual compounding periods. It must also include certain fees and charges not related to interest. The lender must provide this calculated rate three days before closing a loan.