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What is APR and Why It Matters to Your Money

The term “APR,” or annual percentage rate, pops up quite a bit when you’re looking for a credit card, mortgage, or personal or auto loan. It’s a great tool for comparing credit offers. Understanding APR can make a big difference in the bottom line by helping you make the best credit product choice for your needs.

You may have seen the term “APR” in ads for credit cards, mortgages, and personal and auto loans. It stands for “annual percentage rate.” An APR is related to the interest rate, but it’s not exactly the same thing.

With loans, the APR includes any fees you might have to pay. That means it’s the total cost of borrowing, expressed as a percentage of the loan amount. 

Credit cards, on the other hand, have several kinds of APRs. They’re different depending on the intended use of the card and on whether you’re following the card’s terms and conditions.

Finding the right loan or credit card can be confusing. In the past, you would have had fewer choices: banks, credit unions, and loan companies. Now, a vast number of internet lenders want your business. Each has its own fees, loan lengths, and interest rates. 

That’s why the APR is such a great tool for comparing offers: The higher the APR, the more money you’ll wind up paying. This helps you cut through the confusion and make the right choice for your needs.

To easily compare loans and APRs from different lenders and find the best option for you, Fortuna Credit is a great resource.

Here’s what you need to know about the different types of APRs.

How is an APR created? 

The APR varies from person to person. It’s based on the risk you represent to the lender or credit card company.

For personal loans and mortgages, the APR is the loan interest rate plus any fees you have to pay to the lender or broker (or both). Some loans have variable rates, which means they can change annually until they’re repaid. That means the APR can change, too.

For credit cards, companies use this formula: “Prime + Margin = APR.” Here’s how that works:

They start with the prime rate, or the interest rate charged to the most credit-worthy customers. (Example: 3.25%)

Then they add an extra percentage, based on the credit history of the person applying for the card. (Example: 15%)

In this case, the APR is 18.25%.

Generally speaking, the credit card company is not allowed to raise the APR for the first 12 months. But they can change it at any time if you violate the terms and conditions, such as paying your bill late.

How can I find the APR? 

A federal law called the Truth in Lending Act requires the APR to be displayed clearly in any consumer loan agreement. This helps you compare different loan offers. Again: The higher the APR, the more you will pay overall.

Be sure you are comparing APRs to APRs, instead of APRs to interest rates.

When comparing loan options with Fortuna Credit, the results are automatically sorted by APR. Since Fortuna Credit provides lenders with a more accurate and current representation of your financial information, you may be able to find much lower APRs for loans here than in other places.

Is there more than one kind of APR? 


Fixed APR 

That’s just what it sounds like: A fixed APR remains the same. If you secure a personal loan at 9%, it stays at 9% through the last payment.

Variable APR 

A variable APR loan can fluctuate. With mortgages, a change could happen once a year. For credit cards, all APRs are variable, since the card companies can change the rates after 12 months (or any time a card user breaches the terms and conditions).

Introductory APR 

Some credit cards come with a low-interest rate for a specified amount of time. Usually six to 18 months and afterward, the APR increases.

Purchase APR 

This rate applies to credit card purchases.

Balance Transfer APR 

If you have a good to excellent credit score, you might be able to get a balance-transfer credit card with an APR as low as 0%. This means you can transfer balances from other cards onto the new one and pay no interest at all.

This rate lasts anywhere from six to 18 months, depending on the card company. After that, it goes up — maybe way up. If you decide to apply for a 0% balance transfer card, make sure you have a plan in place to pay off the total debt before the introductory 0% rate disappears.

Note: You’ll also have to pay a 3% to 5% fee to transfer the debts to a 0% APR balance transfer card. Keep that in mind while deciding whether a balance transfer is a right choice.

Cash Advance APR 

Many credit cards can be used in ATMs. The cash advance APR is a few percentage points higher than a purchase APR. This means the quick cash ultimately costs you a bundle — especially since the cash advance APR applies as soon as you get the money, and lasts until it’s repaid. 

Note: Getting a cash advance also means a 3% to 5% fee.

Penalty APR 

Among all credit cards, this generally has the highest APR. It’s charged when you break the credit-card agreement, such as paying late or not making the minimum monthly payment.

Does APR always make a difference? 

For a loan, it usually won’t matter. Unless you have a variable APR, the monthly payment is set for the life of the loan. It will always be the same. Obtaining the best interest rate is key to acquiring the lowest possible APR.

The APR may not matter for credit cards if you pay them on time every month. If you don’t owe any interest, the APR doesn’t come into play. In other words, you’re using the bank’s money for free. (Unless there’s an annual fee for the card.)

However, if your monthly payments don’t cover the balance, you’ll have to pay interest on what’s remaining. The card company will charge the APR that fits, such as “purchase APR” or “introductory APR.” 

When you can’t pay in full, the APR does make a difference. And if you pay late, the penalty APR definitely makes a difference.

The bottom line 

The APR is an essential tool for choosing the right credit products. Use it to assist with making the best loan or credit card decisions that best meets your needs. Do you want to see what APRs are available for you? Visit to see some of the most accurate offers customized to your personal needs and compare offers based on APR and more factors.

*Any opinions expressed are those of Fortuna Credit and have not been reviewed or approved by any of our partners.