Define APR and explain its relationship to the note rate.

• A. APR is the true yearly cost of credit including interest, fees, and points; it is usually higher than the note rate.
• B. TILA is the process of adjusting interest rates based on credit scores.
• C. APR is the same as the note rate by definition.
• D. APR is the annual interest rate charged on the loan balance without fees.

Answer: (A)

APR represents the true yearly cost of credit, including interest, fees, and points, spread over the life of the loan. The note rate is the base interest rate used to calculate the monthly payments. APR blends this rate with upfront costs and financed fees to show the overall cost on a yearly basis. Because it includes closing costs, APR is usually higher than the note rate, which is why it’s a better tool for comparing loan offers. Other statements misstate APR or confuse it with just the interest rate or with regulatory processes.