APR stands for annual percentage rate. It is intended to educate consumers, i.e. borrowers, as to the true cost of a loan. The annual percentage rate takes into account all the finance charges imposed by a bank so that borrowers can compare which rate is a better rate for them. For example, is the contract rate of 7 percent plus two points a better deal than a contract rate of 7.25 percent plus no points? The answer lies with the APR. Every lender must inform a borrower what the APR of the transaction is. Once that is done, a borrower can compare the APR from one lender with the APR of the other lender, and the lower APR is the better and cheaper rate.