APR
Annual Percentage Rate - the yearly cost of borrowing including fees.
APR expresses the true annual cost of borrowing money by combining the interest rate with fees (origination, closing costs) into a single percentage. It allows apples-to-apples comparison between loan offers. APR is required by the Truth in Lending Act (TILA) to be disclosed on all consumer and business loan offers.
Formula
APR = ((Fees + Total Interest) ÷ Loan Amount ÷ Loan Term in Days) × 365 × 100Example
Two loan offers both show 8% interest, but Loan A has a 2% origination fee (APR: 9.5%) and Loan B has no fees (APR: 8%)—the APR reveals Loan B is cheaper.
Why It Matters for Your Business
Comparing APR rather than just interest rates reveals the true cost of borrowing, preventing you from choosing a loan that looks cheap but carries hidden fees.
Related Terms
More Banking Terms
ACH
Automated Clearing House - an electronic network for financial transactions.
APY
Annual Percentage Yield - the real rate of return on savings including compound interest.
Bank Reconciliation
Matching bank statements with internal records to identify discrepancies.
Business Checking
A bank account designed for business transactions.
Line of Credit
A flexible loan allowing businesses to borrow up to a limit as needed.
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