APR vs. Interest Rate — Financial Glossary
Definition: APR (Annual Percentage Rate) includes the interest rate plus fees, giving a fuller picture of borrowing costs.
What is the difference?
Interest Rate is the percentage charged on the principal of a loan. It does not include fees or other charges.
Annual Percentage Rate (APR) is a broader measure that includes the interest rate plus other costs such as mortgage insurance, closing costs, discount points, and origination fees.
Why it matters
When comparing loan offers, always compare APRs — not just interest rates. A loan with a lower interest rate but high fees can end up costing more than one with a slightly higher rate and lower fees.
Quick comparison
| Interest Rate | APR | |
|---|---|---|
| Includes fees? | No | Yes |
| Best for comparing? | No | Yes |
| Usually higher? | No | Yes |