What is the difference between a loan interest rate and the APR? | Consumer Financial Protection Bureau (2024)

FAQs

What is the difference between a loan interest rate and the APR? | Consumer Financial Protection Bureau? ›

An annual percentage rate (APR) is a broader measure of the cost of borrowing money than the interest rate. The APR reflects the interest rate, any points, mortgage broker fees, and other charges that you pay to get the loan. For that reason, your APR is usually higher than your interest rate.

A loan's interest rate is the cost you pay to the lender for borrowing money. The Annual Percentage Rate (APR) is a measure of the interest rate plus the additional fees charged with the loan. Both are expressed as a percentage.

The mortgage interest rate is the percentage that you'll pay on top of the repayment amount each year. The APRC combines both the introductory rate and the standard variable rate, as well as any other fees involved with taking out the mortgage, to give you the lifetime cost of the loan.

Annual percentage rate (APR) The APR, or annual percentage rate, is the standard way to compare how much loans cost. It lets you compare the cost of loan products on an “apples-to-apples” basis. Your credit card company must disclose the APR before you agree to the use the card.

The Effective Annual Rate (EAR), also known as the Annual Percentage Yield (APY) is the total amount of interest that will be earned, or paid at the end of one year, and is subject to compounding periods. An annual percentage rate (APR) is the annual rate charged for borrowing or earned through an investment.

An annual percentage rate (APR) is a broader measure of the cost of borrowing money than the interest rate. The APR reflects the interest rate, any points, mortgage broker fees, and other charges that you pay to get the loan. For that reason, your APR is usually higher than your interest rate.

In general, the more fees and expenses are heaped onto a loan, the higher the APR. If a loan has no additional fees, the interest rate and APR will be the same (unless you are choosing to defer payments, in which case the APR may be lower than the interest rate — more on that below).

The APR will usually be higher than the interest rate, but there are exceptions. One is a no-closing-cost refinance: In this case, the interest rate and APR will be the same. Another is an adjustable-rate mortgage (ARM). The APR for an ARM will sometimes be lower than the interest rate.

Mortgage fees add to the cost of the loan, and APR takes them into account. That's why APR is higher than the interest rate.

The annual percentage rate (APR) is the cost of borrowing on a credit card. It refers to the yearly interest rate you'll pay if you carry a balance, plus any fees associated with the card. APR often varies by card. For example, you may have one card with an APR of 9.99% and another with an APR of 14.99%.

What does 400% APR mean? ›

APR means Annual Percentage Rate. It's the cost of borrowing money over a year on a credit card or loan. It takes into account interest, as well as other charges you may have to pay, such as an annual fee.

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Annual percentage rate

The APR is the cost to borrow money as a yearly percentage. It's a more complete measure of a loan's cost than the interest rate alone. It includes the interest rate plus discount points and other fees.

Factors Influencing Your APR

Credit Score: Your credit score plays a significant role in determining your APR. A higher credit score typically results in a lower APR, while a lower score may lead to a higher APR or difficulty securing financing. Loan Term: The length of your loan term can affect your APR.

With a fixed-rate loan, your interest rate and monthly principal and interest payment stay the same. Your total monthly payment can still change—for example, if your property taxes, homeowner's insurance, or mortgage insurance goes up or down.

APR stands for "Annual Percentage Rate," which is the amount of interest that will apply on top of the amount you owe on a year-to-year basis. So, if you have an APR of 30 percent, that means you will have to pay a total of $30 in interest on a loan of $100, if you leave the debt running for 12 months.

A good APR on a personal loan is typically one below 15 percent. But to qualify for it, you'll likely need a credit score above 670 and a stable source of income — or a creditworthy co-signer that meets these requirements. Securing a low APR can save you thousands of dollars over the life of a loan.

interest rate car loan. If the interest rate and the APR on a loan are different, the APR is usually higher. That's because the APR includes the interest rate as well as any additional fees charged by the lender — fees expressed as a percentage via the APR, rather than as a flat total amount.