How to read an APR before you sign anything

Rate, fees and term all fold into one number. Here's what it tells you — and what it doesn't.

The annual percentage rate (APR) is the single most useful number on a loan offer, because it combines the interest rate with most of the fees you'll pay and expresses the total as a yearly cost. Two loans with the same interest rate can carry very different APRs once an origination fee is added.

What an APR includes

Lenders are required under the Truth in Lending Act to disclose the APR before you commit. It generally includes the interest rate plus finance charges such as origination fees. It usually does not include late fees or returned-payment fees, since those depend on what you do after the loan starts.

Compare like with like

An APR is most helpful when you compare offers with the same repayment term. A 12-month loan and a 36-month loan at the same APR will have very different monthly payments and very different total interest. Look at the total amount you'll repay, not just the monthly figure.

Watch the fees that sit outside it

Ask whether there's a prepayment penalty, what late fees look like, and whether autopay changes your rate. None of these always show up in the headline APR, but all of them affect what the loan costs in practice.

The short version

Use APR to rank offers, use total repayment to understand cost, and read the full agreement before you accept anything.