APR — the Annual Percentage Rate — is the yearly cost of borrowing money, expressed as a percentage. It is the number that tells you, more honestly than the interest rate alone, what a loan or credit card will really cost you.
APR stands for Annual Percentage Rate. It is the cost of borrowing money for one year, expressed as a single percentage. Where it differs from a plain interest rate is what it includes: APR folds the interest rate together with certain required fees — the recurring costs of taking on the loan — into one yearly figure.
That makes APR a better apples-to-apples comparison number. Two loans can advertise the same interest rate, but if one carries higher fees, its APR will be higher — and the higher-APR loan is the more expensive one. Lenders are generally required to disclose APR precisely so that borrowers can compare offers on a level footing.
A simple illustration: imagine two one-year loans of $10,000, each advertised at a 7% interest rate. One has $0 in fees; the other charges $300 in origination fees. The first has an APR close to 7%, while the second has an APR noticeably above 7%, because that $300 is part of the cost of borrowing. The interest rate alone would not have warned you. (These figures are illustrative only, not RMO rates.)
Credit cards work a little differently from installment loans. A single card can carry several APRs at once, and it helps to know which is which:
Here is the part that saves the most money: most cards give you a grace period on purchases. If you pay your full statement balance by the due date every month, you generally pay no purchase interest at all — the purchase APR never actually costs you anything. Interest on purchases only kicks in once you start carrying a balance from one month to the next. So a high purchase APR matters enormously to someone who revolves a balance, and barely at all to someone who pays in full.
An APR can be fixed or variable. A fixed APR is set when you borrow and generally stays the same, so your payment is predictable. A variable APR is tied to an underlying index rate, so it can rise or fall as that index moves — meaning your cost of borrowing can change over time. Many credit cards carry variable APRs; many installment loans are fixed. Always check which one an offer uses before you sign.
When you compare borrowing options, lean on APR rather than the headline interest rate — but compare like with like. APR is most meaningful between two similar products quoted to you at the same time: two 5-year auto loans, or two cards of the same type. Comparing the APR on a mortgage to the APR on a credit card tells you nothing useful, because those products are built differently.
One caution for revolving credit: a card’s APR does not capture annual fees or other flat charges, so APR alone is not the full picture on a card — weigh the fees too. RMO offers lending at member rates across its divisions, and applications and accounts are managed in your MyRMO account. Because rates move with the market, see current rates or apply through RMO for the figures that apply to you today.
The interest rate is the cost of borrowing the principal, expressed as a percentage. APR, the Annual Percentage Rate, is broader: it folds the interest rate together with certain required fees into one yearly percentage. Because APR captures more of the true cost, it is a better apples-to-apples number when comparing two loans.
There is no single good number, because APR depends on the type of borrowing, market conditions, and your creditworthiness. A mortgage, an auto loan, and a credit card all carry very different typical APRs. The useful comparison is between similar products offered to you at the same time, and a lower APR for the same product means a lower cost of borrowing.
Most credit cards give you a grace period on purchases. If you pay your full statement balance by the due date every month, you generally are not charged purchase interest at all, no matter what the purchase APR is. Carrying a balance from month to month is what triggers interest. Note that cash advances and some balance transfers often have no grace period.
A fixed APR is set when you borrow and generally stays the same over the life of the loan, so your payment is predictable. A variable APR is tied to an index rate, so it can move up or down as that index changes, which means your cost of borrowing can rise or fall over time.
APR is the cost; these guides help you understand what shapes it and how to choose well:
