Interest Rate vs APR – WHAT'S THE DIFFERENCE?

What is the difference?

Nearly all loan types come with two interest rates: the actual interest rate and annual percentage rate, or APR. Though the disclosure of both rates is done primarily to help borrowers decide what the true cost of loans are from one lender to another, they often confuse borrowers in the process.

Interest rate is the basic rate charged on a loan. It is sometimes referred to as the “note rate”, mostly by lenders, and will be the interest rate of record in all loan documents.

Your loan payments will be based on the total amount of the loan, multiplied by the interest rate, plus loan principal repayment (based on the required loan amortization).

APR is the effective rate on a loan, after subtracting required loan fees from the face amount of the loan. Unless the loan involves no required closing costs, the APR will always be higher than the actual interest rate.

APR is a rate that government regulators require lenders to disclose to prospective borrowers. Since lender fees can vary widely from one lender to