What is APR?
The Annual percentage rate or "APR" is the true interest rate that must be paid for a loan over the course of a year. Used to get a much better idea of the actual cost of a loan, APR is taken as the "true" interest rate because it accounts for all charges the borrower is responsible for including (but not limited to):
- Compound Interest
- Discount Points
- Mortgage Insurance Premiums
- Any associated commitment fees
APR also accounts for the time that the principal is repaid (especially in the situation when interest is paid in the beginning of the year, and the principal is broken into equal installments throughout the year).
The only thing not taken into account for APR are the fees passed on to the borrower for the origination of the loan.