Borrowers can often be confused by the fees involved in a borrowing arrangement and may concentrate instead on the core interest rate. Unfortunately, this can be strongly misleading at times. For this reason, some governments have made it a legal requirement that financial institutions make the annual percentage rate relating to a borrowing arrangement clear to borrowers and prospective borrowers. The financial institutions, naturally enough, may have an interest in obfuscating the underlying cost of a debt. It is for this reason that legislators have felt it necessary to compel them to do so by force of law. An APR calculation takes every cost to the borrower into account over the lifetime of the loan and refactors the borrowing arrangement to make it seem as if it was simply based on the initial sum borrowed and the interest and capital repayments due on it.

For instance the person having excellent credit history deservers low APR credit cards as there are many available credit cards for excellent credit. Similarly the person having low or poor credit report will get loans, credit cards for higher APR. Thus, your credit reports plays an important role in getting you lower APR loans.