What is the annual rate charged in interest for borrowing money called?

The annual percentage rate (APR) is the term that refers to the annual rate charged in interest for borrowing money. It represents the yearly cost of borrowing expressed as a percentage of the loan amount. This measure includes any fees or additional costs that may be associated with the loan, providing a more comprehensive view of how much you will actually pay over the course of a year.

APR is widely used because it standardizes the way lenders present interest rates, allowing borrowers to compare different loan offers more easily. For example, a loan with a lower interest rate may have higher fees, making its effective cost higher when represented as an APR. Thus, understanding APR is crucial for borrowers making informed financial decisions.

Other options refer to different concepts related to loan costs. The loan interest rate specifies just the percentage charged on the borrowed amount, while a fixed interest rate refers to an interest rate that remains the same throughout the life of the loan. The monthly interest rate is simply the annual rate divided by 12 and does not encompass the additional costs associated with borrowing, unlike the APR.