Interest Rate vs. APR – What’s the Difference?

by Julia Guardione Updated on: May 23, 2019

Consumers often see the terms “APR” and “interest rate” in advertisements and in financial conversations and assume that they mean the same thing. Well, that assumption could cost you thousands.

Interest rates are the percentage amounts that lenders charge you to borrow money. Interest rates vary heavily by borrower, type of loan, and lending institution itself.

APR stands for Annual Percentage Rate. Though the APR does include interest rate in its calculation, it also includes other costs associated with the loan such as processing or origination fees, days until first payment, pre-paid interest, and discounts. It essentially calculates the total cost of the loan as a yearly percentage.

Interest rates are an important amount to consider because they determine your monthly payments, but APR provides a broader picture that includes both the interest and one-time costs associated with purchasing that car. All lenders are legally required to present both the interest and APR to help borrowers understand the true cost of  borrowing money, and how these fees are spread out over the life of the loan.

Understanding the difference between interest and APR can be great when comparing loan offers, as you’ll have the ability to get an accurate comparison of each loan’s actual costs, while also comparing interest rates and monthly payments.

Want to learn more?

Check out some of our other blogs!

Titles vs. Registrations

Joint Vs. Cosigned Loans

Debt-to-Income Ratios

Loan-to-Value Ratios

About The Author


Julia Guardione

Julia is the resident content creator at RateGenius. She is a graduate of Texas State University and a lover of all things outdoors. She lives in Austin, Texas with her dog and cat. She’s always open to new ideas, so if you have any suggestions or questions, email her at pr@rategenius.com.


Read More

by Julia Guardione

It’s true: multiple credit inquiries can count as one

Credit inquiries can dock your score by multiple points, but they’re a necessary evil if you’re trying to open a new line of credit. Luckily, there are times where multiple inquiries will combine to count as only one. Any time you apply for a new credit-based product, such as an auto loan, credit card, or…

by Rate Genius

What’s a Lease Buyout Car Loan?

When leasing a car, truck, or SUV - dealers give the option to "buy out" the vehicle at the end of the lease contract. This lease buyout is set at the vehicle’s residual value. Why is it a good idea to buyout a lease? You can avoid paying annoying "end of lease" fees and charges.…

by Julia Guardione

The Fed issues first interest rate cut in a decade

The Fed's role is to maintain stability and "alleviate crises" in our financial system. Historically, they have issued rate increases to stabilize a booming, lending-heavy, high-inflation…

review review

Customer Reviews

Read our 10814 Certified Reviews

4.9

READ OUR REVIEWS
apply now apply now

Apply Now

Lower your interest rate and drop monthly payments by an average of $76*/month!


GET STARTED