What type of costs does the APR include?

The Annual Percentage Rate (APR) is a comprehensive measure that reflects the total cost of borrowing over a year, expressed as a percentage. It includes not only the interest costs associated with the loan but also any additional fees that may come with securing the loan. This can encompass origination fees, points, or other closing costs that a borrower might incur at the outset of the loan. By incorporating both the interest rate and these associated fees, the APR provides a more accurate representation of the overall cost of the loan, allowing borrowers to better understand what they will ultimately pay over the life of the loan.

This combined perspective of interest and fees sets the APR apart from other measures of loan costs, which may consider only the interest or other isolated expenses, failing to provide a holistic view for comparison among different loan options.