Annual Percentage Rate

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Annual Percentage Rate

The Annual Percentage Rate (APR) is the actual rate of interest your loan would be if you included all of the other associated costs such as closing costs and points. APRs are not required by law for commercial real estate. However, it is helpful to understand the underlying concept in order to calculate an effective interest rate for commercial loans.

Since the enactment of the Truth in Lending Act in 1969, lenders have been required to report the APR in boldface type on the first page of all loan contracts. The truth in lending law “requires lenders to disclose in great detail the terms and conditions that apply to consumers when they borrow,” according to an article in United States Banker. In the absence of such requirements, it would conceivably be possible for a lender to misrepresent a loan with a 20 percent effective interest rate as a 10 percent loan. However, the APR can be calculated in different ways and can sometimes cause rather than eliminate confusion.

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