What APR actually is

APR means annual percentage rate. It is a yearly way of stating what borrowed money costs. It is not the same object on every product.

On a credit card

The APR on the statement is the interest rate the issuer applies to the revolving balance, expressed as a year. Monthly interest is that number divided by 12 (issuers use a daily rate in the fine print; the idea is the same). If you pay the statement balance in full by the due date, you typically pay no interest on new purchases. The APR is still printed. It just does not bite that month.

Purchase APR, cash-advance APR, and penalty APR can be three different numbers. Cash advances often start accruing immediately. The payoff calculator is for a purchase balance at one APR.

On a mortgage

The note rate is what goes into the payment formula. The APR on the Loan Estimate folds in certain fees — origination charges, some prepaid interest — so you can compare two quotes that bury cost in different places. A loan with a lower note rate and heavy points can show a higher APR than a no-point loan. Compare APRs on the same term and the same fee set, then still look at cash due at closing.

APY is the savings cousin

Banks advertise APY — annual percentage yield — on savings. That number includes compounding. A 4.00% APY is not the same statement as a 4.00% APR on a loan. One is what you might earn. One is what you pay. Do not subtract them and call it a spread you are owed.

Variable versus fixed

A fixed mortgage APR is a snapshot of a fixed note plus fees. A variable card APR will move when prime moves. After a Fed decision, the card number is the one that can change without you signing anything new. The mortgage number does not, unless you refinance or the loan is adjustable.

For the legal definition on consumer loans, see Regulation Z (Truth in Lending). This page is a household gloss, not a compliance manual.