What is the purpose of disclosing the Annual Percentage Rate (APR) to borrowers?

Disclosing the Annual Percentage Rate (APR) to borrowers serves to represent the true cost of borrowing, including not just the interest rate, but also any associated fees or additional costs that may affect the overall expense of a loan. The APR provides a comprehensive measure that allows borrowers to understand the total cost of borrowing in a standardized way, making it easier to compare different loan offers. This transparency helps borrowers make informed financial decisions by accurately estimating how much they will ultimately pay for the loan over its repayment term.

Understanding the APR is essential for consumers as it encompasses more than just the nominal interest rate; it takes into account various elements such as discount points, lender fees, and mortgage insurance, which can significantly alter the effective cost of a loan. Therefore, the APR is a critical tool for borrowers to evaluate their options and select a loan that aligns with their financial situation.