EyeOnThe short answer
Not necessarily. With the same amount, term and comparable APR definition, a lower APR generally indicates lower borrowing cost. Different terms, optional charges or promotional conditions can change the total paid.
What it means
APR is meant to make borrowing offers easier to compare. Instead of looking at the interest rate, fees and term separately, the APR rolls certain costs into a single yearly percentage.
What is included in APR depends on local rules. Some countries require compulsory fees to be counted; others have a narrower definition. This is why the same loan can show a different APR, or a differently labelled figure, depending on where it is offered.
How it works
A simple way to picture it is the cost of carrying a balance for a year. At 24% APR on a 2,000 card balance with no repayments or new spending, interest would be about 2,000 x 24% / 12 = 40 for the first month. In practice interest is calculated daily or monthly and the balance changes as you repay, so real figures differ.
For loans, APR is based on a repayment schedule. A longer term usually lowers the monthly payment, but more interest can build up in total.
A simple example
A 1,000 loan repaid in 12 payments of 90 totals 1,080. Another repaid in 24 payments of 50 totals 1,200. The second may have a lower annual rate but costs more in total because it runs longer. APR comparisons need the same amount and term, and consistent definitions. These invented schedules exclude other charges.
Things worth checking
- A representative APR may only be offered to a share of applicants. The rate you are offered can differ.
- Variable APRs can change during the agreement.
- APR is not the same as the interest rate, and it is not the same as AER, which is used for savings.
- Comparing total amount repayable as well as APR can give a fuller picture.
How it varies by country
Legal definitions and required disclosures differ by country. In some places the term is APR, in others APRC for mortgages, EAR or something similar. Check the local definition in the paperwork.