The interest rate is the yearly charge on what you owe. The APR, or annual percentage rate, expresses the cost of borrowing as a yearly rate that also reflects certain mandatory charges. When a loan has such charges, the APR is higher than the interest rate.
Side by side
| Interest rate | APR | |
|---|---|---|
| What it measures | The charge for borrowing the money. | Interest plus certain required charges, as one yearly rate. |
| Used for | Calculating your payment. | Comparing one offer with another. |
| Where you see it | Advertising and loan agreements. | The cost-of-borrowing disclosure in your agreement. |
Why the two can differ
If a lender charges a required fee to set up the loan, that fee is a cost of borrowing even though it is not interest. Two loans with the same interest rate can therefore have different APRs.
How to use them
- Ask every lender or dealer for the APR, not only the rate.
- Compare APRs for the same amount and the same term.
- Then compare the total cost of borrowing in dollars.
Advertised “from” rates
An advertised starting rate is the lowest rate a lender offers to its strongest applicants on particular terms. It tells you little about the rate you would get. On this website, a provider’s advertised interest rate is kept apart from a published APR for that reason.
Our calculator uses an interest rate you choose and lists financed fees separately. It does not calculate an APR.