What is generally included in the APR?

The annual percentage rate (APR) provides a more comprehensive measure of the cost of borrowing than just the interest rate. It includes not only the nominal interest rate but also any additional fees or costs associated with the loan. This allows borrowers to understand the true cost of the loan over its term, as APR considers elements such as origination fees, closing costs, and other charges that a borrower might pay upfront.

By including these factors, APR gives a more accurate reflection of what borrowing will actually cost over time, making it a vital tool for consumers comparing different loan options. This is particularly important when borrowers are evaluating different mortgage products, as the lower nominal interest rate might not necessarily lead to a lower overall cost when fees are factored in.

In this context, the other options fall short. Simply stating that the APR includes only the interest rate does not reflect the complete picture of borrowing costs. Additionally, while credit score can affect the interest rate and fees offered to a borrower, it is not directly included in the APR itself. Including only closing fees also does not capture the full array of costs tied to obtaining a loan, which is what the APR aims to represent. Overall, incorporating both the interest rate and all fees into the APR provides a clearer understanding of