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

April 26, 2017Annual Percentage Rate Apr Interest rate loan rate

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Why is a loans annual percentage rate 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 total cost over the term of the loan, It includes the interest rate plus the additional costs of obtaining the loan, such as origination fees and points. The interest rate reflects only the percentage of the loan amount that it costs to borrow the money. The APR is higher than the interest rate because it includes the costs and fees associated with taking the loan.