APR, also known as Annualized Percentage Rate, is the annual rate charged for borrowing or earned through investment.
Why It's Important
APR is typically used when you are borrowing money while APY (annual percentage yield) is used when talking about interest (getting money) from accounts. DO NOT GET THESE CONFUSED!
APR does not take into consideration compounding (remember that? If not, click here) APR is only the simple interest rate. APY, on the other hand, is the compound interest rate. The APY rate will tend to be higher than the APR on the same loan for that reason.
So, be careful when shopping around for interest rates. You want to make sure that you are comparing APR -> APR and not APR -> APY because it could be misleading!
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