When a borrower asks about the difference between the APR and interest rate in a TIL disclosure, what should the loan originator explain?

The Annual Percentage Rate (APR) is designed to provide borrowers with a more comprehensive view of the true cost of borrowing compared to the simple interest rate. When explaining this to a borrower, it's essential to highlight that the APR encompasses not just the interest rate on the loan, but also includes other costs associated with obtaining the loan, such as lender fees and any points that may be paid. This means that even if the interest rate is low, additional costs can make the overall borrowing expense significantly higher, which is reflected in the APR.

This distinction is vital for borrowers to understand, as it impacts their ability to compare loan offers effectively. By looking at the APR, borrowers get a clearer picture of the total cost of the loan over its term, facilitating a more informed decision. The other options do not accurately capture this meaning; for instance, stating that the APR and the interest rate should be the same misrepresents the nature of these two figures. Similarly, the idea that the APR shows the rate before discount points are applied does not address the full scope of what the APR represents. Thus, understanding the APR's components helps borrowers recognize how the cost of the loan is not limited to the interest rate alone.