Two similar-sounding terms, two opposite purposes
APR (Annual Percentage Rate) is used for borrowing — a ₹10,00,000 loan at a stated 10% rate with a ₹15,000 fee has an APR of 10.65%, revealing that the loan actually costs more than the stated rate suggests. APY (Annual Percentage Yield) is used for saving or investing — a nominal 8% deposit rate compounded monthly has an APY of 8.3%, revealing that the deposit actually pays more than the stated rate suggests.
Different extra ingredient, same direction of adjustment
Both figures always move the same way relative to their nominal rate — equal to or higher, never lower. But what pushes them up is different: APR rises because of fees reducing what a borrower actually receives; APY rises because of compounding adding interest onto interest already earned.
Why higher APR is bad but higher APY is good
Since APR measures borrowing cost, a higher APR means a worse deal for the borrower — the loan actually costs more than it appears to. Since APY measures investment return, a higher APY means a better deal for the saver — the deposit actually earns more than it appears to. The same "higher than nominal" direction means opposite outcomes depending on which side of the transaction you're on.
When both figures collapse back to the nominal rate
APR equals the nominal rate exactly when there are no fees at all. APY equals the nominal rate exactly when there's no compounding within the year (interest credited only once annually). Both figures are genuine adjustments to a real-world complication — remove that complication, and each one reduces back to the plain stated rate.