APR stands for annual percentage rate. In normal-person terms, it is a way to compare the yearly cost of borrowing. It can be more helpful than the interest rate alone because some fees may be folded into the APR.
APR is about cost, not just the rate
A loan with a lower interest rate is not always cheaper if it comes with heavier fees. APR tries to make the comparison less slippery by putting more of the borrowing cost into one percentage.
Interest rate and APR can be different
The interest rate is the cost of borrowing the principal. APR may include certain lender fees or financing charges, depending on the product. That is why a loan can advertise one rate and show a higher APR.
Credit cards work a little differently
With credit cards, APR usually matters when you carry a balance. If you pay the statement balance in full and on time, you may avoid purchase interest. Cash advances, balance transfers, and promotional offers can have their own rules.
Compare similar loans
APR is most useful when the loan amount, loan type, and term are similar. A smaller monthly payment can still cost more overall if the term is stretched out for years.
If one loan has a slightly lower payment but a much longer term, do not stop at the monthly number. Look at APR, total interest, and total paid.
Good places to double-check
Loan disclosures and credit card agreements should spell out the APR. When comparing offers, make sure you are looking at the same loan type, term, and fee structure.