Question

Banks and other lenders are required to disclose a rate called the APR. What is this rate? Why did Congress require that it be disclosed? Is it the same as the effective annual rate? If you were comparing the costs of loans from different lenders, could you use their APRs to determine the loan with the lowest effective interest rate? Explain.

Answer 1

The full form of APR is the Annual Percentage Rate.

The Annual Percentage Rate or APR is explained as it is rate which is charged for withdrawing by the other lenders and Bank.

The borrower has to know that in what percentage the bank and the other lenders will be charged, so they not able to be cheated by the other lender and the bank and the borrower not have any opacity on borrowing and they know that what interests the borrower are depositing for his/her borrowings. That's why the congress required it to be disclosed.

The Effective Annual Rate is the interest which is compounding more than one time in a year.

Comparing the cost of a loan from the other lenders :

If there is compounding more than one time in a year than the APR is used to know the EAR either EAR is greater than APR.