Answer:
The characteristics of an annual percentage rate are that it can change over time for certain kinds of loans; it is the interest charged each year for a loan; and it can be reduced to reflect the borrower’s credit history.
Explanation:
The Annual Percentage Rate allows a homogeneous comparison of the interest rates of multiple financial operations with different capitalization periods, using the same annual time base. It allows to homogenize different nominal rates, expenses, commissions, settlement periods, etc. It is definitely the annual interest that is generated once discounted the expenses and commissions for one or several capitalizations at nominal interest.
A fixed annual nominal rate would correspond to different values of APR if the number of capitalizations varies within a year or if the expenses or commissions change.
However, the APR does not include the expenses that the client can avoid (for example, the expenses of transfer of funds), those that are paid to third parties or companies (brokerage, notarial fees and taxes) or expenses for insurance or guarantees (except for premiums intended to guarantee the entity the repayment of the credit in case of death, disability or unemployment, provided that the entity imposes its subscription for the granting of the loan).
