What does the Annual Percentage Rate (APR) represent?

The Annual Percentage Rate (APR) represents the total cost of the loan expressed as an annual rate. This figure provides a more comprehensive picture of what the borrower will actually pay over the course of a year, incorporating not only the interest rate but also other associated costs such as points, closing fees, and certain other charges that may be required to secure the loan. By reflecting these costs in an annualized form, the APR allows borrowers to compare loans with different terms and fees on a consistent basis, enhancing their ability to make informed decisions based on the overall cost of borrowing.

The significance of APR lies in its role as a standardized measure, helping consumers understand the true cost of credit over time rather than merely presenting an interest rate. This fosters transparency and promotes informed financial choices, aligning with the goals of the Truth in Lending Act to ensure that consumers have the necessary information to evaluate credit offers effectively.