In personal finance, what is the measure of a loan’s total yearly cost expressed as a percentage, including many fees?

In personal finance, the measure of a loan’s yearly cost expressed as a percentage and incorporating many fees is the annual percentage rate.

Annual percentage rate, or APR, was developed to make borrowing costs easier to compare than a bare interest rate alone. Depending on the jurisdiction and product, the calculation can include interest and certain finance charges, such as origination fees. The exact required components are defined by applicable consumer-credit law.

APR is not always identical to the interest rate. A loan can advertise a low nominal rate but have fees that raise its APR. Conversely, the calculation may not include every possible charge, such as late fees or optional services. Credit-card APRs are often stated as annual figures even though interest may accrue using a daily periodic rate.

Comparisons work best when loans have similar terms, repayment schedules, and assumptions. Borrowers should also examine the amount financed, total payments, fixed or variable pricing, and the consequences of missed payments rather than relying on one percentage alone.