Annual percentage rate, or APR, is a way of measuring the full cost a lender charges per year for funds. Typically associated with mortgages and loans, APR combines the total amount of principal, interest, taxes and insurance, averaged over the term of the loan and expressed as a percentage.
Interest Rate
The advertised rate, or nominal interest rate, is used when calculating the interest expense on your loan.
For example, if you were considering a mortgage loan for $200,000 with a 6 percent interest rate, your annual interest expense would amount to $12,000, or a monthly payment of $1,000.
Always remember:
Interest rate is the cost of borrowing the principal.
APR includes other costs associated with borrowing the money.
The Federal Truth in Lending Act requires that every consumer loan agreement list the APR along with the nominal interest rate.
Lenders must follow the same rules to ensure the accuracy of the APR.
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