Financial Glossary of Finance Terms Annual Percentage Rate (APR)

Annual percentage rate (APR) is a definition intended to identify the true cost of borrowing and to provide the consumer with a method of comparing the true costs of different types of loan.

Mortgage loans were originally excluded from a requirement to quote an APR and was designed more to reflect the cost of different types of hire-purchase contracts which, at the time the legislation was drafted, were frequently quoted on flat and fixed basis giving headline rates which were often half the APR. It is a legal requirement that a true APR figure be provided with any loan illustration.