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The Annual Percentage Rate (APR) refers to the annual rate of interest charged to borrowers and which is paid to investors. It is a percentage that represents the yearly cost of funds over a term of a loan or income earned on an investment. The APR provides a number that can be easily compared to rates from other lenders and it is expressed as an interest rate. The APR computation consists of the interest rate, the processing fee, the foreclosure amount and all other extra charges made by respective banks.
The final percentage is the real cost of the loan across a year and the borrower needs to pay this amount annually to their respective banks or financial institutions. The normal interest rate charged on loans does not take into consideration other charges like the processing fee, penalties, etc. However, as the APR takes all of the extra charges under consideration too, it is higher than the usual interest rate charged on a loan.