The interest rate is the cost of borrowing the principal balance. APR is designed to reflect the interest rate plus certain loan costs expressed as a yearly percentage.
Why APR can be higher than the rate
APR may include costs such as certain lender fees, discount points, and other finance charges. That means two loans with the same interest rate can have different APRs.
How to use APR
APR can help compare loan offers, especially when you plan to keep the loan long enough for upfront costs to matter. It is still important to compare monthly payment, cash due at closing, points, credits, and loan term.
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