APR vs Interest Rate: What's the Difference?

When you compare loans, you'll see two percentages: the interest rate and the APR. They're not the same, and confusing them can cost you. Here's the difference in plain terms.

Interest rate

The interest rate is the cost of borrowing the principal, expressed as a yearly percentage. It's what drives your monthly payment in an amortization calculation.

APR (Annual Percentage Rate)

The APR includes the interest rate plus certain fees — origination charges, points, and other costs — spread across the loan term. Because it bundles fees, the APR is usually higher than the headline interest rate, and it reflects the true yearly cost more honestly.

Why the gap matters

Two loans can have the same interest rate but different APRs if one has heavy fees. Comparing APRs lets you see which is genuinely cheaper. A loan advertising a low rate but a much higher APR is loaded with fees.

How to compare offers fairly

• Compare APR to APR, not rate to APR.
• Make sure the loan term is the same — APR assumes you keep the loan to term.
• Watch for fees rolled into the balance, which raise your real cost.

Estimate your payment

For the monthly payment itself, use the interest rate in our loan calculator. To judge the true cost of an offer, look at its APR. If you want to approximate fees, add them to the loan amount and see how the payment changes.

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