The Annual Percentage Rate (APR) is crucial for borrowers as it reflects the total cost of an option, including interest and fees. At Lendio, we simplify this concept to help you make informed financial decisions.
Why Does APR Matter?
APR helps borrowers:
Compare financing options accurately.
Understand the true cost of borrowing.
Choose the most cost-effective financing option.
What’s Included in APR?
APR consists of:
Interest rate – The yearly cost of borrowing.
Origination fees – Charges for processing the financing.
Closing costs – Fees associated with finalizing the financing.
Other fees – Additional expenses like service or annual fees.
How Is APR Calculated?
APR accounts for all funding costs and expresses them as an annual interest rate. It factors in the funding amount, interest rate, loan term, and fees. Lenders must disclose APR by law.
APR vs. Interest Rate
APR is more comprehensive than the interest rate. While the interest rate covers only the cost of borrowing, APR includes all associated fees, giving a clearer picture of the total loan cost.