APR and Interest, in Plain English

APR - annual percentage rate - is the yearly cost of borrowing, including interest and most fees, expressed as one number. Cards usually charge variable APRs tied to the prime rate; loans quote fixed APRs for the term.

Why it matters

APR is the only honest comparison between offers. Monthly payments hide long terms, and 'low interest' marketing hides fees - APR forces both into the open.

Key facts

• Card APRs averaged above 20% in recent years; carrying a $5,000 balance at 24% costs about $100 a month in interest alone.
• Paying your card statement balance in full each month means the APR never touches you - the grace period makes the card free.
• A 0% intro APR is a clock, not a gift: the deferred or post-promo rate applies to whatever balance remains.
• For mortgages and auto loans, a quarter-point of APR on a large balance outweighs almost any rewards program.

In practice

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