The relationship between the cost of borrowing and the total amount financed, shown as a percentage, is known as what?

The concept describes the Annual Percentage Rate (APR), which is a critical term in the context of borrowing and financing. APR represents the cost of borrowing money on an annual basis, expressed as a percentage of the total amount financed. It encompasses not just the interest rate on the loan, but also includes any additional fees or costs involved in obtaining the loan, providing a more complete representation of the borrowing costs.

This comprehensive nature of the APR allows borrowers to compare different loan products more effectively since it consolidates various costs into a single percentage. Understanding APR is important because it reflects the total cost of borrowing over the life of the loan, helping individuals to make informed financial decisions.

The other terms listed refer to different aspects of lending: an ARM (Adjustable Rate Mortgage) pertains specifically to loans with interest rates that can change over time; a discount point is a fee paid to reduce the interest rate of a loan, often used to lower monthly payments; and the note rate simply refers to the specified interest rate charged on a borrower’s loan, without encompassing additional fees or costs associated with the loan.