What type of charge does APR typically include?

APR, or Annual Percentage Rate, typically includes not just the loan interest but also various additional costs associated with borrowing. This encompasses administrative costs that lenders incur in managing and issuing the loan, any profit margin they expect to achieve, and of course, the interest charged on the loan itself. By incorporating these elements, APR provides a more comprehensive picture of the total cost of borrowing, allowing consumers to better understand what they will pay over the term of the loan.

This broader approach in calculating APR is mandated in many jurisdictions to promote transparency in lending practices, ensuring that borrowers can make informed decisions based on the total financial impact, rather than just the interest rate alone. Understanding this aspect is crucial for both consumers and financial professionals when assessing loan options.