Under loan pricing terms, which statement correctly distinguishes APR from the note rate?

• A. APR reflects total cost of credit including interest and certain fees, annualized
• B. The note rate is the annual percentage rate including points
• C. APR equals the note rate
• D. The note rate includes all fees

Answer: (B)

The main idea is to separate what the numbers represent. APR is the true annual cost of borrowing, reflecting not just interest but also certain fees and points that are part of the loan’s total cost, all expressed as an annual rate. The note rate, by contrast, is simply the stated interest rate used to calculate the monthly payments and does not include closing costs or points. Because APR includes those additional costs, it is usually higher than the note rate, unless there are no fees or points. So the correct distinction is that APR represents total annual cost of credit, while the note rate is just the interest rate on the loan.