What is APR (Annual Percentage Rate)?

By Lyle Daly – Updated Jan 6, 2025 at 3:31 PM

Key Points

APR includes interest and other fees; it reveals the true yearly cost of a loan.
Credit card APRs adjust based on the U.S. prime rate and your credit score.
Paying the full credit card balance each month avoids any interest charges.

APR (annual percentage rate) is the yearly cost of borrowing money. If you borrow $1,000 for a year at a 20% APR, the total to pay back would be $1,200.

Although that's a straightforward explanation, APR can be more complicated when it comes to credit cards. And despite how often the terms "APR" and "interest rate" are used interchangeably, they aren't quite the same thing. To better understand how credit card companies calculate interest charges, here's a guide to what is APR and how it works.

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A pile of square pieces of paper with an interest rate written on each and one in the middle with a question mark on it. — Image source: Getty Images.

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About the Author

Lyle Daly is a contributing Motley Fool stock market analyst covering information technology and cryptocurrency. Lyle has been a contributor at the financial services company since 2018. His work has been featured on USA Today, Yahoo Finance, MSN, Fox Business, and Nasdaq. Before joining The Motley Fool, he wrote for financial brands including Intuit.

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