Rates & Loans
What is the difference between interest rate and APR?
Updated Jul 1, 2026
The short answer
The interest rate is the cost of borrowing the principal, expressed as a yearly percentage. The APR (annual percentage rate) is broader: it folds in the interest rate plus certain lender fees and points, so it reflects the total cost of the loan on a yearly basis. APR is usually higher than the rate, and comparing APRs helps you weigh loans with different fee structures.
Key points
- Interest rate drives your monthly payment.
- APR includes rate plus certain fees, so it shows total cost.
- A low rate with high fees can have a high APR.
- Compare APRs on the same loan type and term.
When APR can mislead
APR assumes you keep the loan for its full term. If you plan to move or refinance sooner, a loan with lower fees but a slightly higher rate can cost less in practice. Look at both numbers together, not just one.
Common questions
- Why is my APR higher than my rate?
- Because APR includes finance charges like points and certain lender fees spread across the loan term, on top of the interest rate itself.
Put this to work
Sources
Every claim above traces to a public government source.