APR is the true annual cost of a loan, rolling the interest rate together with fees, points, and other charges into a single percentage. Because it captures more than the headline interest rate, it's the fairer number for comparing two loan offers.
A loan with a low interest rate but high fees can have a higher APR — and cost more overall — than a no-fee loan with a slightly higher rate. That's why lenders are required to disclose APR alongside the rate.
Related terms: PMI · Amortization