APR (Annual Percentage Rate)

The Annual Percentage Rate (APR) is a standardized measure that communicates the annual cost of borrowing, encompassing not only the nominal interest rate but also any additional fees and charges associated with the loan. Like a lighthouse guiding sailors through treacherous waters, the APR allows borrowers to compare different loan offers and make informed decisions about the true costs involved.

Example

A borrower may be considering two mortgage offers with the same nominal interest rate of 4%. However, one lender charges a higher origination fee, which is factored into the APR. By comparing the APRs of the two loans, the borrower can see that the loan with the higher origination fee has a higher APR, indicating a higher overall cost of borrowing. The APR provides a more comprehensive view of the total costs associated with a loan, enabling borrowers to make better-informed choices when selecting a lender or loan product.

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