APR vs. Interest Rate

Is there a difference?

APR (Annual Percentage Rate) includes costs and fees associated with the loan. The interest rate does not. The interest rate is simply the rate you pay on the loan, excluding any other costs.

Looking at the interest rate alone is not an effective way to evaluate a loan. The APR is much more effective, as it factors in the interest rate PLUS any other costs to finance the loan, providing a much more holistic view.

When you apply for a loan, you should always be able to see both the interest rate and the APR. If you don’t, ask your lender to provide both.

If you compare two loans with the same interest rate (note rate) and the APR is higher on one – you should find out what the additional costs are. This comparison will help you evaluate the loan products more effectively.