APR (Annual Percentage Rate) is the true annual cost of borrowing — it includes the interest rate plus all fees and charges expressed as a yearly percentage. Unlike the stated interest rate, APR lets you compare loans on an apples-to-apples basis.
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Pro Tip
For short-term loans (refinancing in <5 years), a lower rate with higher fees might be worse than a higher rate with no fees. Always calculate the break-even point.
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Did You Know?
The Truth in Lending Act (TILA) of 1968 requires lenders to disclose the APR to prevent deceptive lending. Before TILA, lenders could advertise a low rate while burying fees in the fine print.
References
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