What is APR?
What is the APR and how is it calculated?
APR stands for annual percentage rate and its purpose is to give borrowers a
truer representation of the effective interest rate on their loan. APR factors
in certain closing costs and fees and spreads these costs over the life of the
loan, along with the note rate, to arrive at a more accurate annualized
percentage rate than the note rate alone represents.
California Department of Real Estate definition: Annual Percentage Rate (APR) -
The annual percentage rate (APR) of interest includes both the simple interest
rate and certain fees, commissions, costs, and expenses. By contrast, the simple
interest rate, or note rate, does not include these costs and fees. If a broker
or lender quotes an interest rate to you, be sure to ask if that rate is the
simple rate or the APR. Use the APR to compare loans which have different simple
interest rates, points and other loan charges. The loan with the higher APR may
cost you more over the term of the loan.
