Accounting Fundamentals Certification (AFC) Practice Test

The term that describes the cost of borrowing money, often expressed as a percentage, is the annual percentage rate (APR). The APR provides a clear picture of the total cost of borrowing by including not just the interest charged on the borrowed amount, but also any additional fees or costs associated with the loan. This allows borrowers to make more informed comparisons between different loan offers as they consider both the interest and any extra charges involved, expressed as a yearly rate.

The interest rate, while closely related and indeed a percentage figure indicating the cost of borrowing expressed as a part of the principal amount, does not encompass additional fees and costs, making it less comprehensive than the APR. The principal refers specifically to the original sum of money borrowed, and the loan term pertains to the duration over which the loan must be repaid. Neither of these terms capture the overall cost of borrowing like the APR does.