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Why is a loans annual percentage rate (APR) higher than the interest rate on the loan itself?

April 26, 2017Annual Percentage Rate Apr Interest rate loan

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Why is a loans annual percentage rate (APR) higher than the interest rate on the loan itself?

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Established by the Federal Reserve, the APR is an expression, in annual percentage terms, of a loan’s interest over the term of the loan plus the added costs of obtaining the loan, such as origination fees and points. The APR is higher than the interest rate because it includes the costs and fees at loan origination.

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Established by the Federal Reserve, the APR is an expression, in percentage terms, of a loan’s interest rate plus the added costs of obtaining the loan, such as origination fees and points. If there were no additional costs involved in obtaining a loan, the APR would equal the interest rate.