What does the Annual Percentage Rate (APR) include?

The Annual Percentage Rate (APR) is a comprehensive measure designed to reflect the true cost of borrowing over the term of a loan. It includes not only the interest charged but also any additional costs or fees associated with securing the loan, such as origination fees, points, and other closing costs. This helps borrowers understand the overall cost of financing and make more informed comparisons between different loan offers.

By including these additional costs, the APR provides a more complete picture of what a borrower will actually pay over the life of the loan, beyond just the interest rate. This is why it is essential for borrowers to consider the APR when evaluating loan options, as it accounts for the total cost of borrowing effectively. Since option B encompasses both interest and additional charges, it accurately reflects the purpose and calculation of the APR.