Why is the annual percentage rate (APR) higher than the Interest Rate?
Why is the annual percentage rate (APR) higher than the interest rate?
APR is composed of the interest rate stated on a loan plus fees, origination charges, discount points, and agency fees paid to the lender. These up-front costs are added to the principal balance of the loan. Therefore, APR is usually higher than the stated interest rate because the amount being borrowed is technically higher after the fees have been considered when calculating APR.
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