Logo

Annual Percentage Rate (APR)

March 22, 20233 min read

{noun} The total annual cost to borrow money, including fees, expressed as a percentage.

What is Annual Percentage Rate (APR)?

Annual percentage rate (APR) is the cost of borrowing money on an annual basis. APR is expressed as a percentage, to make it easier to compare the cost of credit.

APR and interest rate are sometimes used interchangeably, however, APR and interest rate are different. APR includes both interest plus fees applied over the course of a loan. Because APR is a more complete measure of the cost of credit, it is usually higher than the interest rate.

How is Annual Percentage Rate Calculated?

To calculate APR on a loan, you’ll need to know a few other numbers first:

Interest: The total interest charges paid over the life of the loan, also known as the cost of borrowing money.
Fees: Review the terms and conditions of the loan to find the fees that apply to your loan. Fees vary by loan type and lender.
Principal: The original loan amount.

Days in the Loan Term (n): Since APR measures the annual cost of borrowing money, multiply 365 (days) by the number of years in the loan term. For loan terms under one year, use the number of days.

The formula to calculate APR is:

The steps to calculate APR are:

  1. Find the interest charges

  2. Add the fees

  3. Divide the sum by the principal balance

  4. Divide by the number of days in the loan’s term

  5. Multiply by 365

  6. Multiply by 100

Credit Card APRs

Credit card APRs do not reflect fees and since a credit card has no set loan amount or fixed repayment term, its APR is simply its interest rate.

Under the Truth in Lending Act, passed in 1968, lenders and other financial institutions must disclose APR when offering credit.

Why is Annual Percentage Rate Important?

Knowing the annual percentage rate helps you understand the true cost of borrowing.

For example, all lenders are required to disclose APR, which makes it easier to compare loans from different banks and make a more informed borrowing decision.

Are There Different Types of APRs?

There are different categories of APRs depending on the type of financial product.

Credit Card APRs

Credit cards have several APRs that may apply to different transactions or account activities.

  • Purchase APR: The rate you pay for purchases.

  • Balance transfer APR: The rate applied if you use a card to pay down balances on other credit cards or loans.

  • Cash advance APR: The rate charged on ATM withdrawals or cash-equivalent transactions, like money-order purchases.

  • Introductory APR: A promotional interest rate for a limited period of time that is lower than the card's regular APR, sometimes as low as 0 percent APR.

  • Penalty APR: A higher-than-normal rate that results from violating a card’s terms of service.

What’s the Difference Between Fixed and Variable APRs?

APRs can be fixed or variable. A fixed APR remains unchanged for the life of your loan. A variable APR fluctuates in sync with a published market index, like the U.S. Prime Rate.

Adjustable-Rate Mortgages

Home loans with variable interest rates are called adjustable-rate mortgages (ARMs). With an ARM, your APR is fixed for an initial term (typically one, three, or five years, but sometimes as long as 10 years), then resets every six or 12 months, based on market rates.

What Affects APR?

The APR you're offered depends on a few factors:

  • Whether a loan or line of credit is secured or unsecured

  • Current economic conditions

  • Your credit history

Lenders may also consider your income and assets, down payment, and where you live when determining your APR.

How Do You Get a Good APR?

Getting the best APR on a loan or credit card typically requires shopping around.

Start by prequalifying with multiple lenders. Prequalifying is a quick process where you provide some basic information about your income and borrowing goal. Then, lenders respond with a preliminary, non-binding estimate of the loan amount and APR. This is typically done through a soft credit check, which doesn’t impact your credit.

Then, compare the preliminary offers and submit a full application to your lender of choice. With your detailed financial information and a hard credit inquiry, which will impact your credit, lenders can make a formal loan offer that includes your APR, fees, and repayment terms.

If you’re unhappy with the terms you’re offered (or if lenders decline your applications), your credit history might be the culprit. If this is the case, you can work to pay down your existing debts and bring late payments current, which can improve your credit score and chances for approval over time.

Personal loans up to $40,000
Check your rate. It won’t impact your credit score.2
Privacy & Security

You May Also Like

Related Resource Center
Chances are, you’re managing money differently today than you were a few years ago. If your shopping, spending, and money management have moved online and onto your phone, you might want to consider whether an online-only bank is a fit for you.
Sep 30, 2024
7 min read
Guide to Banking Online
If you’re in the market for a new car, you might be wondering if your current credit score will help you get a good deal or hold you back. Your credit score is an important part of the process, but it’s not the only factor. Though good and excellent credit scores help when taking out any line of credit, it is possible to buy a car with a less-than-ideal score.
Sep 30, 2024
6 min read
good credit score for a car
Pride of homeownership also means managing (and paying for) what can often feel like an insurmountable list of repairs and improvements. Sometimes it's difficult to know when to DIY a home repair project or find a handyman or other professional better equipped to handle it for you. Learn which common home improvement projects are simple enough to tackle on your own, and when to call in the experts.
Sep 28, 2024
8 min read
DIY home repair
Opening a bank account online is a convenient way to manage your money without setting foot in a local branch. Today, many online-only banks, traditional banks, and credit unions have easy online applications, so you can shop around and open an account from the comfort of your home.
Sep 25, 2024
6 min read
How to Open a Bank Account Online
What does it take to achieve financial independence early in life? The end goal for many FIRE followers is early retirement—but it’s not the only goal.
Sep 24, 2024
9 min read
Young millennial guy with his bulldog taking a selfie
Related Impact
From groceries and diapers to Halloween costumes for pets, nearly 60% of American consumers prefer to shop online for everyday items that make life more convenient, comfortable, and enjoyable. And with rising prices showing no signs of stopping anytime soon, we’re pleased to introduce StackitTM from LendingClub Bank—a new browser extension that automatically finds and rewards eligible members with coupons and cash back for extra savings at more than 15,000 favorite online retailers.
Nov 13, 2022
2 min read
blog header stackit 765x430 v1-1
Even in today’s low-yield, high-inflation environment, it’s essential to keep a certain amount of money in an easy-to-access checking or savings account for things like daily household and emergency expenses, or to meet short-term financial goals.
Oct 2, 2022
5 min read
LendingClub Rewards Checking Nationally Certified as Trusted, Afforda
Since 2007, LendingClub has been on a mission to deliver a world-class experience to all our members. This month we took a moment to reflect on the more than four million members who have chosen LendingClub as their partner to help them reach their financial goals.
Apr 19, 2022
2 min read
Illustration of large number 4 and letter M made up of colorful, tiny illustrations of ethnically diverse people
In March 2022, we hosted our first quarterly webinar where we celebrated our one-year anniversary as a digital marketplace bank. 
Mar 6, 2022
less than a minute read
Blog-post
LendingClub completed the acquisition of Radius Bank in February 2021. At that time, in addition to the direct-to-consumer deposit business, we inherited a fintech partner program, and several lending businesses. As we reach the one-year anniversary of the acquisition, and in conjunction with the conclusion of a strategic review of our business operations, we have made the decision to discontinue certain businesses that don’t fit our mission.  
Jan 2, 2022
2 min read
Man in blue button up shirt and glasses smiling
Related FAQ's
We offer several ways for you to make your monthly auto loan payment, so you can choose the method that works best for you. A statement will be mailed to you every month that shows the payment amount and due date.
Nov 29, 2023
less than a minute read
LendingClub provides a year-end statement that summarizes your account activity, including how much interest you’ve earned and information regarding Notes tied to loans that have been charged off.
Jun 7, 2023
less than a minute read
Once you’ve submitted your application, we’ll try to confirm your information on our own. Sometimes, you may need to submit a few documents to confirm your identity, income, or vehicle ownership.
Jun 7, 2023
less than a minute read
Once you submit your Auto Refinance application, we may ask you for additional paperwork to verify your information.
Jun 7, 2023
2 min read
If we’re not able to offer you a lending product, you're welcome to apply through one of our lending partners.
Jun 7, 2023
2 min read
Related Glossary
{noun} A type of credit that allows the borrower to make charges and payments against a set borrowing limit, paying interest only on outstanding balances.
Sep 6, 2023
4 min read
{noun} The amount of unpaid interest that has accumulated as of a specific date, either on a loan or an interest-bearing account or investment. 
Mar 21, 2023
4 min read
A debt that is written off as a loss because the financial institution or creditor believes it is no longer collectible due to a substantial period of nonpayment.
Feb 7, 2023
3 min read
{noun} An interest rate that remains the same for a set time, usually for the life of the loan.
Feb 4, 2023
3 min read
{noun} A loan used to pay off one or more debt accounts, usually to change interest costs, monthly payment, and/or payment term.
Jan 28, 2023
4 min read

Unless otherwise specified, all credit and deposit products are provided by LendingClub Bank, N.A., Member FDIC, Equal Housing Lender (“LendingClub Bank”), a wholly-owned subsidiary of LendingClub Corporation, NMLS ID 167439. Credit products are subject to credit approval and may be subject to sufficient investor commitment. Credit union membership may be required. Deposit accounts are subject to approval. Deposit products are FDIC-insured up to $250,000 per depositor, per ownership category.

"LendingClub" and the "LC" symbol are trademarks of LendingClub Bank.

© 2024 LendingClub Bank. All rights reserved.