What is APR (annualised percentage rate)?

An annual percentage rate turns the cost of borrowing into one yearly figure. Under the National Credit Code, which covers regulated consumer credit, the credit provider must state it in the contract, and the figure covers interest alone. Establishment fees, account keeping fees and other charges are real costs, but they are disclosed beside the rate rather than built into it. Business and equipment finance contracts sit outside the Code, so on those the quoted rate is whatever the contract says it is.

The rate is applied to the unpaid balance for each day or period, then charged at the agreed frequency, so how often interest is added changes what you actually pay. That is why compound interest matters here. Where a contract carries more than one rate, an introductory rate and an ongoing rate say, each annual percentage rate has to be disclosed.

In Australia the answer is short: an APR is the interest rate and nothing else. ASIC's Moneysmart glossary puts it the same way, as the rate charged to the borrower, excluding expenses such as account opening and account keeping fees. Those fees are still disclosed, just separately, in the precontractual statement and credit contract.

The Australian figure that adds most compulsory fees is the comparison rate, which is worked out by a prescribed method on a loan amount and term the lender states. The fees-inclusive framing you may have read elsewhere is the United States usage, where Truth in Lending rules define APR to take in most compulsory fees. Check the precontractual statement and credit contract for what a quoted figure covers, and ask the lender for a written breakdown of the fees and the method used.

APR is a screen for shortlisting, not the final word. It can mislead when loans compound at different frequencies, when a promotional rate applies for part of the term, or when a variable rate moves after the figure was disclosed. Fees sit outside it entirely, so a low APR carrying a heavy establishment fee can cost more than a higher one without it.

To compare fairly, match the loan term and the repayment frequency across offers, and recalculate if the amounts differ, because a fixed fee weighs far more on a small loan than a large one. Then work out the total you will actually repay under your own scenario. For a credit card, use the balance you expect to carry rather than the headline figure.