What is the likely effect of a loan origination fee of one point on the nominal interest rate compared to the APR?

In a loan transaction, understanding the relationship between the nominal interest rate and the annual percentage rate (APR) is crucial for evaluating the true cost of borrowing. The nominal interest rate is the stated rate before any fees are taken into account, while APR reflects the total cost of borrowing expressed as an annual rate, including the interest and any points or origination fees.

When a loan origination fee is charged, such as the case with one point (which equals 1% of the loan amount), the APR typically increases because it incorporates this fee into the overall cost of the loan. However, if it is specified that there is a loan origination fee of one point but no other additional fees or costs are factored into the APR calculation, the nominal rate and the APR may end up being the same. This situation can arise when the one point serves to merely structure the loan but does not alter the overall cost in a way that would differentiate the APR from the nominal interest rate.

Thus, when we consider that a loan origination fee of one point does not necessarily change the nominal interest rate but will be included in the APR computation, they can be perceived as equal under certain conditions. This understanding helps clarify why the nominal interest rate would be the same