In short: the APR is the total cost of a credit — interest, fees, commissions and compulsory insurance — expressed as one annual percentage of the total amount of credit, so that offers can be compared.
Simply put: the interest rate shows only the price of the money. The APR adds everything else you must pay to get the credit. All lenders calculate it by the same formula, so two lenders with the same interest rate can have different APRs.
Example: a €5,000 loan over 12 months at 12 % interest with a one-off €150 fee. The instalment is €444.24; with the fee you repay €5,480.93. The effective annual cost including the fee is about 19.4 % (Pecuvo's calculation; the exact APR follows the legal formula).
Watch out: a low instalment does not mean a cheap loan — it often means a long term. Compare the APR and the total amount to repay.
The EU rule: Directive 2008/48/EC, Article 3(i) defines the APR as the total cost of credit to the consumer, expressed as an annual percentage of the total amount of credit; from 20.11.2026, Directive (EU) 2023/2225 (Article 30) keeps the method and requires measures against excessive costs, "such as caps" (Article 31).
Example: Bulgaria — Consumer Credit Act, Article 19: the APR may not exceed five times the statutory interest on late payments set by decree of the Council of Ministers; clauses above the cap are null and void. The law contains no figure — the statutory interest changes.
Check in your country — Does your country cap the APR or the total cost of credit? Look at the consumer protection authority or the financial supervisor.
Source: Directive 2008/48/EC — https://eur-lex.europa.eu/eli/dir/2008/48/oj; Directive (EU) 2023/2225 — https://eur-lex.europa.eu/eli/dir/2023/2225/oj; Consumer Credit Act (in Bulgarian) — https://lex.bg/bg/laws/ldoc/2135666506