APR vs Interest Rate: What's the Difference?
The interest rate is the cost of borrowing the money itself. APR is the interest rate plus required fees, expressed as a yearly rate — so APR is usually equal to or higher than the interest rate.
| APR | Interest rate | |
|---|---|---|
| What it includes | Interest + lender fees (origination, points, some closing costs) | Interest only |
| Best used for | Comparing the full cost of different loan offers | Working out your monthly payment |
| Typical size | Equal to or higher than the interest rate | Equal to or lower than the APR |
| On credit cards | Usually the same number as the interest rate | Usually the same number as the APR |
| Required by law (U.S.) | Yes — Truth in Lending Act disclosure | Shown, but APR is the standardized figure |
Bottom line
Compare loans by APR, and check the monthly payment with the interest rate. A low rate with big fees can have a higher APR than a slightly higher rate with no fees.
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