Annual Percentage Rate (APR)

When applying for a car loan, you will be quoted a number called APR. APR stands for annual percentage rate. APR is the annual interest rate of the loan, plus any fees or other costs associated with the loan amount. The APR is sometimes higher than an advertised interest rate, because it includes fees that are not advertised.

APR can be a very confusing term, because there are no set rules for computing it. When applying for a car loan, any fees associated with the loan will be added to the prime interest rate, or the interest rate that your credit history qualifies you to receive. APR will be expressed as a percentage, and at the end of each year, you will pay that percentage of the loan amount. For example, if you APR is 8.15%, then at the end of each year it takes you to repay the loan, you will owe an additional 8.15% of the balance of the loan. APR is divided into each monthly payment for convenience.

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