Annual Percentage Rate (APR)

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Annual percentage rate is the annual charge a borrower actually pays to the lender for a loan. In the case of mortgage loans, the APR is often greater than the pure interest rate charged on the note. This is because mortgage lenders can include costs in their APR that are in addition to the interest rate. For example, two different mortgagees may offer an interest rate of 5% for a 30-year mortgage, but one will charge points at 3% and the other will charge points at only 2%. The result is that the first lender will show a higher APR, even though the interest rates are the same. Even more confusing, there is no uniform standard as to what sort of costs can be included. This can make it hard to compare APRs offered by different lenders. Credit card issuers charge their credit card holders an annual percentage rate on the unpaid balance due. In this case, the APR is usually a pure interest rate; however, sometimes there are multiple APRs applied to different activities. For example, the APR charged on the balance resulting from making purchases may be different from the APR charged on any cash advances or penalties. An introductory APR offered when you first get the credit card may be much lower than the ultimate APR. See Teaser Rate.