Annual Percentage Rate, or APR, is a yearly rate that shows either what a borrower pays to use money or what a lender or investor earns on funds. In plain terms, it is a single percentage that makes loans and investment returns easier to compare across products and platforms. In crypto, platforms also use APR to show potential returns from lending or staking digital assets.
APR uses simple interest. A common way to compute it is to take the periodic interest rate and multiply it by the number of periods in a year. Because it relies on simple interest, APR does not reflect the effect of compounding during the year.
APR focuses on the money cost over a year and often rolls in more than just the raw interest rate. Many loan APRs add certain fees into that single figure, which helps people compare total borrowing costs across lenders. The exact items included can vary by product, so it is worth checking what a specific APR contains.
The same idea shows up in decentralized finance. Lending markets and staking programs provide a quoted APR, indicating the annualized return users can expect on deposited tokens, based on simple interest. Exchanges and protocols sometimes advertise higher APRs to draw in liquidity. Actual quoted rates can move as market conditions change.
APR and APY both describe returns, but they are not identical. APR leaves out compounding within the year, while APY includes the effect of interest-on-interest and therefore can be higher for the same base rate. This difference explains why two offers with the same stated rate can show different outcomes after a year, depending on whether compounding is considered.
Platforms and exchanges may present APRs under different setups. Fixed arrangements lock funds for a set time and typically pay a higher rate. Flexible arrangements allow users to withdraw funds at their convenience, typically at a lower rate. These labels show up in both centralized platforms and DeFi interfaces.
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