Interest rate and APR sound alike but measure different things. Learn how fees change the true cost of a loan.
Two numbers, two jobs
The interest rate is the cost of borrowing the money itself. APR, the annual percentage rate, includes the interest rate and certain fees, so it gives a fuller picture of what the loan costs per year.
Why fees matter
Suppose you borrow $10,000 for 36 months at a 6% rate with a 5% origination fee. You receive $9,500 but repay the full $10,000 plus interest. The effective APR is closer to 9.5%.
When APR is most useful
APR is the best tool for comparing loans with different fee structures. A lower rate with a high fee can cost more than a higher rate with no fee.
What APR does not tell you
APR may not include every charge, such as late fees or optional insurance. It also assumes you keep the loan to the end of the term, so repaying early changes the picture.
Fixed vs variable
A fixed APR stays the same. A variable APR can change with market rates, which can raise your payments later.
Check the maths
The APR with fees calculator solves the effective rate for you.
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