What Is APR? The Number to Compare
APR turns interest and fees into one yearly rate, so a two-week loan and a two-year loan can be compared fairly. Here's how it works, how to calculate it and how to use it to find the cheapest loan.
APR, or annual percentage rate, is the yearly cost of a loan including interest and most required fees. It's the fairest way to compare loans. A $15 fee on $100 for 14 days equals 390% APR. U.S. lenders must disclose APR before you sign under the Truth in Lending Act.
- APR includes
- Interest plus required fees
- $15 per $100, 14 days
- 390% APR
- Required by
- Truth in Lending Act
- Affordability benchmark
- 36% APR
What APR Means
The annual percentage rate (APR) is the cost of borrowing for a full year, expressed as a percentage of the amount you borrow. It includes the interest rate plus most required fees, like origination fees, so it reflects what the loan actually costs.
Because every lender must calculate APR the same way, it's the most reliable number for comparing offers, even when one lender quotes a flat fee and another quotes a monthly rate.
APR vs Interest Rate
APR vs interest rate
APR includes fees, so it's the fairer number
Only the cost of borrowing the principal
Interest plus required fees like origination, as one yearly rate
If a loan has no fees, its APR and interest rate are the same. Add a 5% origination fee to a one-year loan, and the APR rises several points above the interest rate even though your payment barely changes.
How to Calculate APR
For a simple short-term loan, divide the fee by the amount borrowed, divide by the number of days, then multiply by 365. Here's how that works for a typical payday loan fee:
How a $15 fee becomes a 390% APR
A short loan's fee, expressed as a yearly rate
Fee to APR Converter
Enter any loan's amount, total cost and length to see the approximate APR.
Above 36%: consider lower-cost options first.
Simple-interest approximation for single-payment loans: (cost ÷ amount) × (365 ÷ days). Installment loan APRs are calculated differently because the balance falls over time; use the loan calculator for those.
Your Rights Under the Truth in Lending Act
Before you sign a consumer loan, the lender must give you a written disclosure that shows:
- Annual percentage rate, the yearly cost of credit.
- Finance charge, the total dollar cost of the loan.
- Amount financed, the credit actually provided to you.
- Total of payments, everything you'll pay if you follow the schedule.
No APR, no deal. If a lender or app won't show you the APR before you accept, treat that as a reason to walk away.
Using APR to Compare Offers
- Compare APRs for the same amount and term. That isolates the true price difference.
- Then check the total of payments. A low APR over a long term can still cost more in dollars.
- Watch for fees outside the APR, like late or returned-payment fees, which only apply if something goes wrong.
- Use 36% as a benchmark. Lenders in our network offer 5.99% to 35.99%.
APR FAQ
What is APR?
APR, or annual percentage rate, is the yearly cost of a loan including interest and most required fees, expressed as a percentage. It lets you compare loans with different fees and terms on the same scale.
Is APR the same as the interest rate?
No. The interest rate covers only interest. APR adds required fees such as origination fees, so APR is equal to or higher than the interest rate.
Do lenders have to tell me the APR?
Yes. Under the federal Truth in Lending Act, lenders must disclose the APR, finance charge, amount financed and total of payments in writing before you sign.
What is a good APR for a small loan?
Lower is always better. Many consumer advocates treat 36% as the upper limit for affordable credit, and the Military Lending Act caps covered loans to servicemembers at a 36% Military Annual Percentage Rate. Lenders in our network offer 5.99% to 35.99%.
Why does a short-term loan have such a high APR?
Because APR annualizes the cost. A fee that looks small for two weeks repeats 26 times in a year, so a $15 fee per $100 equals about 390% APR.
Sources: Consumer Financial Protection Bureau, Truth in Lending Act (Regulation Z). Reviewed October 3, 2026.
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