Annual Percentage Rate (APR): Definition and What It Is
The annual percentage rate, or APR, is the total annual cost of a loan expressed as a percentage. It includes the interest rate plus any fees associated with the loan, like lender fees.
On federal student loans, the APR is close to the stated interest rate because origination fees are relatively small. For private student loans, the gap between the stated rate and the APR can be wider, depending on the fees the lender charges. The Truth in Lending Act requires lenders to disclose APR before a loan is finalized.
Why it Matters
When comparing loan offers, the interest rate alone can be misleading. A loan with a 6.5% rate and a 2% origination fee costs more than a loan with a 6.8% rate and no fees, even though the first rate looks lower. APR accounts for both and gives you a single basis for comparison.
For borrowers evaluating a refinance, APR is the number to compare across lenders, not just the advertised rate. Yrefy's student loan refinance program is built for borrowers with distressed private loans. The refinance vs. settlement comparison on the Yrefy blog gets into how to evaluate options when a loan has already gone sideways.
Comparison
Two lenders both quote 7% interest on a $20,000 private loan. Lender A charges no origination fee. Lender B charges a 1.5% origination fee. Lender A's APR is 7%. Lender B's APR is closer to 7.8% once the fee is folded in. Same interest rate on paper, meaningfully different cost in practice. APR is what closes that gap in the comparison.
