What financial term describes the total cost of borrowing money?

The total cost of borrowing money is best described by the Annual Percentage Rate (APR). APR provides a comprehensive view of the borrowing costs, including not only the interest rate on the loan but also fees, points, and other costs associated with securing the loan. This makes it an essential figure for borrowers because it allows them to understand the true cost of a loan over its term, enabling them to make informed comparisons between different loan offers.

While other financial terms such as Loan-To-Value Ratio (LTV) and Debt-To-Income Ratio (DTI) are important metrics in evaluating a borrower's financial situation, they do not encapsulate the total costs associated with borrowing. LTV measures the ratio of a loan to the value of the property securing the loan, and DTI assesses a borrower's ability to manage monthly payments based on their income. Closing costs refer to the fees that must be paid at closing, which are part of the overall cost of borrowing but do not represent the total borrowing cost over time as APR does. Therefore, APR is the critical metric for understanding the financial implications of a loan in its entirety.