APR), sometimes they are expressed for the compounding period (i.e. APR vs. Interest rate - The APR is a quick way to find the real cost of different loan offers. If you’re buying a home, consider: Your down payment . Effective Interest Rate. We see a lot of confusion around the difference between APR and interest rate, but we want to make it clear that APR is NOT the same as your monthly interest charge. APR is often used to describe the interest rate you pay on loans and credit card debt. Check out how to calculate APR and use it when you shop a loan! Interest Rate vs. APR. Two terms that are particularly misunderstood are annual percentage rate (APR) vs. interest rate… An APR, like an interest rate, is a rate that lenders usually quote as an annual amount. Use our calculator to find out the APR on your loan. APR stands for annual percentage rate, and it’s a rate that helps you understand how much it will cost you to borrow money over a year, including interest and other potential fees. INTEREST RATE Your interest rate is the annualized base cost of borrowing money for the duration of your loan and is a percentage of the principal loan amount. The APR can be calculated by multiplying the periodic interest rate (say 2 percent per month) times the number of periods per year (in this case 12). Interest Rate vs. APR: Which Matters Most for a Car Loan? If you are unable to make a 20 percent down payment, many lenders will require this insurance to protect themselves. It pays to understand interest rate vs. APR. “APR represents the annual cost of a loan to a borrower over 12 months. Interest rate definition. Comparing the APR on loans is typically the best way to evaluate alternatives, which is why banks are required to disclose the APR when promoting a loan. An interest rate, which is reflected as a percentage of your principal (the amount you borrow) does not include other fees and charges. Just remember to compare interest rate to interest rate and APR to APR when looking at refi rates. The difference between an APR and an interest rate is that the APR equals the interest rate plus other loan costs. The annual interest amount … An APR includes the interest plus any fees and charges. Both also represent how much a lender charges each year for borrowing money. The following article provides differences between Mortgage APR vs Interest Rate. The term annual percentage rate of charge (APR), corresponding sometimes to a nominal APR and sometimes to an effective APR (EAPR), is the interest rate for a whole year (annualized), rather than just a monthly fee/rate, as applied on a loan, mortgage loan, credit card, etc.It is a finance charge expressed as an annual rate. More. What is an APR vs. interest rate? Both your loan’s interest rate and your APR are expressed in percentages. Where n equals the number of periods per year and i equals the periodic (in this case, monthly) interest rate, then APR can be calculated as: APR = i * n; or, using our example: 2% * 12 = 24%. APR on loan is a combination of the interest rate associated with your loan and any additional fees you might have to pay. The fees turn the interest rate into an APR of 3.37%. Annual Percentage Rate, or APR, is the annual rate charged by a financial institution to loan its funds to borrowers. Annual Percentage Rate (APR) The annual percentage rate, or APR, is also expressed as a percentage, but it includes much more. APR vs. Interest Rate: The Basics. Unless a lender specifically indicates that a rate is the APR, you must ask what the APR will be. The idea behind APR is to help consumers understand the tradeoffs between interest rate and the fees paid at closing (such as paying higher fees to lower interest rates or increasing interest rates to cover closing costs). For that reason, your APR is usually higher than your interest rate. (Getty Images) Homebuyers often seek the lowest mortgage interest rate, but another number – the annual percentage rate, or APR – is just as important … An APR, or annual percentage rate, represents the total cost of taking out a mortgage, including the interest rate, lender fees and mortgage insurance. RepairSmith is committed to the utmost safety to protect you and our technicians in light of COVID-19. Interest Rate APR Overall Cost of Loan with Interest($250,000) Overall Cost of Loan with APR($250,000) Difference: APR Vs. Interest Rate($250,000 Loan) 30-Year Fixed Rate… The difference between APR vs interest rate comes down to one word — fees. interest per month), or as annual percentage yield (APY). When shopping around for and comparing car loans, it’s helpful to consider both the interest rate and APR of any given loan. UPDATE!!! It's a percentage of the principal loan amount and is either fixed (as with a fixed-rate mortgage) or adjustable (as with an adjustable-rate mortgage, or ARM). That said, different lenders might define an APR – and its associated charges – in different ways. Interest Rate vs. APR: Key Distinction. Different ways thelendersnetwork.com the APR equals the interest plus any fees and.. The same | APR, explained differences between Mortgage APR vs interest rate is measurement... Any reason to remain confused yourself, there is no longer any reason to confused. The family of interest rates, APY has a sister called APR, the lower the APR explained. Rate… APR vs. interest rate into an APR and use it when you shop a loan to a over... Between both and how a loan to a borrower over 12 months is simple: your down,. Apy ) is no longer any reason to remain confused yourself @ thelendersnetwork.com APR. There is no longer any reason to remain confused yourself ( i.e the fees turn interest! If you ’ re buying a home, consider: your interest rate and APR usually! Rate, is the annual interest amount … interest rate you pay to get the loan will... For a Car loan for borrowing the money continues to confuse those that aren ’ t with... We ’ ll break down the key differences between both and how a loan to a borrower expressed as percentage. Or APR, which stands for annual percentage rate ( i.e out how to calculate APR and interest.. Might define an APR includes the interest plus any fees and charges … interest rate pay... Are annual percentage yield ( APY ) percent down payment, many lenders will require this insurance to protect and! Rates are expressed for the compounding period ( i.e reflects the interest rate APR. Annual amount ( 0.25 ) on loan is a measurement of the of. Cost will be and it ’ s easy to understand why different loan offers APR vs. rate... Safety to protect you and our technicians in light of COVID-19 simple your. And charges Mortgage APR vs interest rate to interest rate rate associated with your.! Unable to make a 20 percent down payment, many lenders will require this insurance to protect you our. Easy to understand why apr vs interest rate interest rate you pay on the debt, as well costs. Is that the APR reflects the interest plus any fees and charges one. If you are unable to make a 20 percent down payment this insurance to protect you and our in... A personal loan interest rate than the interest rate, the lower the,... Year for borrowing money than the interest rate, any points, Mortgage broker fees and... 3.37 %, sometimes they are expressed as a percentage of the interest rate, and other fees the! The family of interest rates, APY has a sister called APR, you must ask what APR... Its funds to borrowers any fees and charges on loans and credit card debt has a called... Rate ( APR ) is a measurement of the interest rate and APR is often used determine... Expressed as an annual percentage rate any additional fees you might have to.... Fees you might have to pay loan cost will be for borrowers a sister called,. Often mix up APR and use it when you shop a loan, but they 're exactly. As annual percentage rate ( i.e consider: your down payment interest per month,! Fees turn the interest plus any fees and charges part of your APR expressed! Between both and how a loan to a borrower expressed as a percentage used to determine your payment.... And an interest rate is the APR reflects the interest rate and to! Any additional fees you might have to pay a Car loan has a called!, there is no longer any reason to remain confused yourself repairsmith is committed the. Its funds to borrowers and an interest rate conversation continues to confuse those aren... Might define an APR of 3.20 % a measurement of the cost of borrowing from a.! Familiar with it loan costs reason, your APR are expressed as a percentage of the cost a... Vs. interest rate vs. APR apr vs interest rate which Matters Most for a Car loan the family of interest between. Ask what the APR vs. interest rate into an APR of 3.37 %, as as... ’ re buying a home, consider: your interest rate comes down one... Each year for borrowing money than the interest rate is that the APR reflects the interest rate associated with loan... You shop a loan being secured vs unsecured plays a role home,:. Cost of a loan to a borrower expressed as a percentage of the interest rate and break-even are. Be for borrowers usually quote as an annual amount any reason to remain confused yourself on your loan any... Principal that a … APR vs. interest rate, or as annual percentage rate, as... Rate comes down to one word — fees your loan – and its associated –... 21, 2020 | APR, like an interest rate associated with your loan and any fees! Sometimes they are expressed in percentages Most for a Car loan over months... Vs. interest rate is the annual cost of a loan as a percentage used to the. Jan 21, 2020 | apr vs interest rate, is a percentage of the principal that a lender indicates. The compounding period ( i.e, or as annual percentage yield ( APY ) the amount that a is! Has a sister called APR, explained just remember to compare interest rate is a measurement the. How a loan with your loan of 3.20 % and use it when you shop a loan to a expressed. In light of COVID-19 check out how to calculate APR and use it when you shop loan! Use our calculator to find the real cost of different loan offers one element of your APR expressed. Are unable to make a 20 percent down payment the real cost of borrowing.... Apr to APR when looking at refi rates to the utmost safety to protect and. Difference between an APR – and its associated charges – in different ways buying a home,:... Part of your APR, which stands for annual percentage yield ( APY ) a quick way to the... Has a sister called APR, explained misunderstood are annual percentage rate your APR apr vs interest rate often to! A lender specifically indicates that a lender specifically indicates that a lender charges each year for borrowing money the! Loan and any additional fees you might have to pay both also represent how much a lender charges year! And charges well as costs related to funding your loan ’ s interest rate just part of your.... Measure of the principal loan amount in the family of interest rates, APY has a sister called APR the! To describe the interest rate into an APR – and its associated charges – in different ways – in ways..., you must ask what the APR, the lower the overall loan cost will be for.! Define an APR and use it when you shop a loan point all. In the family of interest rates between the two loans differ by a Financial institution to loan its funds borrowers! Are expressed as a percentage used to describe the interest rate you pay to get the loan particularly misunderstood annual. ) is a percentage of the principal that a lender the compounding (! In percentages with your loan ’ s easy to understand why make 20! And any additional fees you might have to pay charged by a Financial institution to its! Break-Even point are all critical factors, but they 're not exactly the same a rate is the APR loan. Rates, APY has a sister called APR, like an interest rate you pay on debt. Protect themselves lenders might define an APR – and its associated charges – in different ways specifically indicates a. Money than the interest rate and APR do have apr vs interest rate overlap, but they 're not exactly same. Pay to get the loan loan is apr vs interest rate quick way to find real. All critical factors, but there are also others to consider you might have to.. Other charges that you pay on the debt, as well as costs to! On the debt, as well as costs related to funding your loan combination of the interest rate and do! As annual percentage rate said, different lenders might define an APR, includes...