Which statement is true about an annual percentage rate (APR)?(1 point) Responses It is reduced every time you make a payment. It is reduced every time you make a payment. It is of little interest to the average borrower. It is of little interest to the average borrower. It is a simple way to compare all the various elements of different loans. It is a simple way to compare all the various elements of different loans. It is equal to the interest rate times the principal.
It is equal to the interest rate times the principal.
The statement that is true about an annual percentage rate (APR) is: It is a simple way to compare all the various elements of different loans.
The statement that is true about an annual percentage rate (APR) is that "It is a simple way to compare all the various elements of different loans."
To understand why this statement is true, let me explain what APR is and how it can be used to compare loans.
APR is the cost of borrowing expressed as a yearly interest rate. It includes not only the interest charged on the loan but also any other fees or charges associated with the loan, such as origination fees or closing costs.
By knowing the APR of different loans, borrowers can compare the overall cost of different loans more easily. This is because the APR takes into account not just the interest rate but also any additional fees associated with the loan. Since different loans may have different interest rates and fees, the APR allows borrowers to compare the total cost of borrowing across different loan options.
For example, let's say you are looking at two different loans: Loan A with an interest rate of 5% and Loan B with an interest rate of 4%. At first glance, it might seem like Loan B is the better option because it has a lower interest rate. However, if Loan A has additional fees that are included in its APR, while Loan B has no additional fees, the APR might be higher for Loan A, making it the more expensive option overall.
Therefore, when comparing loans, it is important to look beyond just the interest rate and consider the APR to get a more accurate picture of the total cost of borrowing.