How is the cost of a loan expressed as a yearly percentage rate that includes interest and closing costs referred to?

The term that describes the cost of a loan expressed as a yearly percentage rate, which includes both the interest charged and the closing costs, is known as the Annual Percentage Rate (APR). The APR provides borrowers with a more comprehensive view of the loan’s total cost, encompassing not just the interest but also any additional fees or charges that may be required to secure the loan. This holistic approach allows consumers to compare different loan offerings more effectively, as it standardizes the cost representation across various products.

The APR is especially important in lending as it illustrates the total cost of borrowing on a yearly basis, helping borrowers understand the financial implications of their loans beyond simple interest rates. By comparing the APRs of various loans, borrowers can better assess which loan will ultimately be the most economical choice over its lifetime. This makes it a crucial concept in mortgage lending and real estate finance.