How does APR differ from the note rate?

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Multiple Choice

How does APR differ from the note rate?

Explanation:
APR represents the total cost of borrowing expressed as an annual rate. It combines the note rate (the interest rate stated in the loan agreement) with certain upfront fees and points, then annualizes that overall cost. So APR shows what you effectively pay each year for the loan, not just the interest portion. The note rate, by itself, is simply the interest rate on the loan and does not include closing costs. That’s why APR is typically higher when there are origination fees or points, and it aligns with the note rate only when there are no additional fees.

APR represents the total cost of borrowing expressed as an annual rate. It combines the note rate (the interest rate stated in the loan agreement) with certain upfront fees and points, then annualizes that overall cost. So APR shows what you effectively pay each year for the loan, not just the interest portion. The note rate, by itself, is simply the interest rate on the loan and does not include closing costs. That’s why APR is typically higher when there are origination fees or points, and it aligns with the note rate only when there are no additional fees.

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