Which statement is true regarding the relationship between loan APR and loan costs?

The statement that an APR exceeding average indicates potential high-cost loans reflects an important understanding of how the Annual Percentage Rate (APR) functions in relation to the overall cost of borrowing. The APR includes not only the interest rate on a loan but also other costs associated with obtaining the loan, such as fees and points. Therefore, a significantly higher APR compared to national averages often suggests that a loan is more expensive, as it factors in these additional costs beyond just the interest rate.

In the context of loan evaluations, the APR serves as a useful benchmark for borrowers seeking to understand the total cost of the loan. When the APR is above average, it might signal that the loan is either not competitive or could include fees that significantly increase the borrower's overall financial obligation.

Understanding this relationship is vital for consumers and mortgage professionals alike, as it helps in making informed decisions regarding loan options. This awareness can help borrowers avoid loans that may seem enticing at first due to lower monthly payments but can become costly over time due to high APRs and associated fees.