APR is the annual cost of funds over the life of the loan including fees. Which option best matches this definition?

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Multiple Choice

APR is the annual cost of funds over the life of the loan including fees. Which option best matches this definition?

Explanation:
APR represents the true yearly cost of borrowing, including both interest and fees, spread over the life of the loan. The description that states the annual cost of funds over the life of the loan including fees matches this idea exactly, because it captures both the interest you pay and the fees you incur, converted into a single yearly rate for easy comparison. The yearly interest rate alone ignores fees, so it doesn’t reflect total cost. An APR that excludes closing costs understates what you actually pay. And dividing the monthly payment by the loan amount describes a payment-to-loan ratio, not the annual cost of borrowing.

APR represents the true yearly cost of borrowing, including both interest and fees, spread over the life of the loan. The description that states the annual cost of funds over the life of the loan including fees matches this idea exactly, because it captures both the interest you pay and the fees you incur, converted into a single yearly rate for easy comparison.

The yearly interest rate alone ignores fees, so it doesn’t reflect total cost. An APR that excludes closing costs understates what you actually pay. And dividing the monthly payment by the loan amount describes a payment-to-loan ratio, not the annual cost of borrowing.

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