APR (Annual Percentage Rate)

The Annual Percentage Rate (APR) is a standardized measure of the annual cost of borrowing. It includes the nominal interest rate and any fees or charges tied to the loan. This helps borrowers compare loan offers and understand the real cost of borrowing.

Example

A borrower may compare two mortgage offers with the same nominal interest rate of 4%. One lender, however, charges a higher origination fee, and that fee is reflected in the APR. By comparing the APRs of both loans, the borrower can see that the loan with the higher origination fee also has a higher APR, which means a higher total borrowing cost. APR gives a clearer view of total loan costs and helps borrowers make better decisions when choosing a lender or loan product.

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