The annual percentage rate (APR) is a standardised way of expressing the overall cost of borrowing, including both the interest rate and certain fees, as a single percentage. It’s designed to provide borrowers with a clearer understanding of the true cost of a loan or credit product.
The APR takes into account not only the interest rate charged on the borrowed amount but also any additional costs such as origination fees, points, and certain other finance charges. By including these costs, the APR gives borrowers a more accurate representation of what they’ll actually pay over the life of the loan or credit agreement.
Lenders are typically required to disclose the APR to borrowers when offering loans or credit, allowing borrowers to compare different offers more easily and make informed decisions about their borrowing options. Keep in mind that while the APR provides a helpful comparison tool, it may not cover all potential costs, so it’s important to carefully review all terms and conditions before committing to a loan or credit product.