ELI5: What is apr
APR means Annual Percentage Rate—it is the yearly cost of borrowing money for a car loan, shown as a percentage. It includes the interest rate plus some fees, so it tells you the loan’s more complete price.
Think of it like buying a toy:
- The interest rate is the toy’s price.
- The APR is the toy’s price plus extra costs like wrapping or service fees.
That’s why APR is useful: two car loans might have the same interest rate, but the one with more fees can have a higher APR, meaning it costs you more overall.
For a car loan, APR helps you compare offers fairly because lenders must calculate it in the same way. A loan with a lower APR is usually cheaper to borrow, while a higher APR usually means you’ll pay more over time.
Simple example:
- Loan A: 5% interest, few fees
- Loan B: 5% interest, but more fees
Both may look the same at first, but Loan B can have a higher APR because of the extra costs.
So, in car loans, APR = the full yearly borrowing cost, not just the interest rate.
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