What is APR and how does it relate to loans?

• A. The yearly interest rate before fees.
• B. Interest earned on a savings account.
• C. A credit score.
• D. Annual cost of borrowing including interest and fees.

Answer: (D)

APR stands for annual percentage rate. It shows the yearly cost of borrowing, expressed as a percentage, and it includes the interest rate plus most fees charged to obtain the loan. This single number helps you compare different loan offers, because even if two loans have the same quoted interest rate, the one with higher fees will have a higher APR and thus a higher overall cost. So, choosing the loan with the lower APR generally means paying less over the life of the loan, all else equal. It’s about the total cost of borrowing on an annual basis, not the amount you earn on savings or a separate metric like a credit score.