APR (Annual Percentage Rate)
The annual cost of borrowing without accounting for compounding. APR is typically lower than APY for the same rate because it doesn't include the compound effect.
APR tells you the annual cost of borrowing — or the annual yield on lending — expressed as a simple percentage with no compounding baked in. If a platform quotes you 10% APR on a loan, you owe 10% of the principal over a full year, calculated on a straight-line basis.
Borrowers care because APR is the honest number before the math gets complicated. Lenders care because platforms sometimes advertise APY — which includes compounding — to make yields look bigger. Knowing which one you're looking at changes your actual return.
How It Works
The formula is simple: APR = (interest charged ÷ principal) × (365 ÷ days in loan term). Borrow $10,000 for 180 days at 10% APR, and you owe $493 in interest — not $1,000. The rate is annualized, but you only pay for the time you actually borrow.
APR does not compound. That's the whole point. Each period's interest is calculated on the original principal, not on a growing balance. A 10% APR and a 10% APY are the same only if interest is paid once per year and never reinvested.
In crypto lending, most platforms compound interest continuously or daily. That means a 10% APR becomes roughly 10.52% APY when compounded daily. The gap looks small at low rates — it widens fast as rates climb.
Why It Matters
When you're comparing borrowing costs across platforms, APR is the apples-to-apples number. One platform quoting 8% APY and another quoting 8% APR are not offering the same deal. The APY platform is more expensive to borrow from — period.
What is Liquidation?
The forced sale of collateral when a borrower's loan-to-value ratio exceeds the protocol's maximum threshold. Liquidations protect lenders by ensuring loans remain overcollateralized.
Full glossary entryBill's Take
In 25 years of mortgage lending, every loan disclosure led with APR — not because regulators demanded it, but because it's the cleanest way to compare costs across different loan structures. The Truth in Lending Act in the U.S. has required APR disclosure on consumer loans since 1968 for exactly this reason. Crypto platforms aren't bound by TILA, so they can — and do — advertise whichever number looks better. That's usually APY for lenders and sometimes APR for borrowers. Read the fine print and convert if you have to.
What to Watch
APR also typically excludes fees. Origination fees, platform fees, and liquidation penalties don't show up in the headline APR figure. A 9% APR loan with a 2% origination fee is really an 11% effective cost in year one. Always ask what's included — and what isn't.
Rate Disclosure Risk
Crypto platforms are not required to disclose APR the same way traditional lenders are. A platform can quote APR, APY, or a weekly rate — and there's no regulatory standard forcing consistency. Before you borrow or lend, confirm whether the quoted rate is APR or APY, how often interest compounds, and whether any fees are baked in or listed separately.
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