The fees turn the interest rate into an APR of 3.37%. For that reason, your APR is usually higher than your interest rate. Where n equals the number of periods per year and i equals the periodic (in this case, monthly) interest rate, then APR can be calculated as: APR = i * n; or, using our example: 2% * 12 = 24%. Annual Percentage Rate, or APR, is the annual rate charged by a financial institution to loan its funds to borrowers. The term annual percentage rate of charge (APR), corresponding sometimes to a nominal APR and sometimes to an effective APR (EAPR), is the interest rate for a whole year (annualized), rather than just a monthly fee/rate, as applied on a loan, mortgage loan, credit card, etc.It is a finance charge expressed as an annual rate. We’ll break down the key differences between both and how a loan being secured vs unsecured plays a role. Interest Rate APR Overall Cost of Loan with Interest($250,000) Overall Cost of Loan with APR($250,000) Difference: APR Vs. Interest Rate($250,000 Loan) 30-Year Fixed Rate… The point and other fees turn the interest rate into an APR of 3.20%. INTEREST RATE Your interest rate is the annualized base cost of borrowing money for the duration of your loan and is a percentage of the principal loan amount. Easy enough so far. The APR reflects the interest rate, any points, mortgage broker fees, and other charges that you pay to get the loan. An APR, like an interest rate, is a rate that lenders usually quote as an annual amount. The difference between APR vs interest rate comes down to one word — fees. Annual Percentage Rate (APR) The annual percentage rate, or APR, is also expressed as a percentage, but it includes much more. If you are unable to make a 20 percent down payment, many lenders will require this insurance to protect themselves. However, once in a while, you’ll see APR mentioned for deposit accounts, which essentially means a simple interest rate in that context, Tumin said. The difference between interest rate and APR is simple: your interest rate is just part of your APR. People often mix up APR and interest rate, and it’s easy to understand why. The primary difference between an interest rate and annual percentage rate, or APR, is that the APR includes all financing costs on a loan. We see a lot of confusion around the difference between APR and interest rate, but we want to make it clear that APR is NOT the same as your monthly interest charge. UPDATE!!! An interest rate, which is reflected as a percentage of your principal (the amount you borrow) does not include other fees and charges. The following article provides differences between Mortgage APR vs Interest Rate. Mortgage insurance can also impact your APR. interest per month), or as annual percentage yield (APY). But your interest rate is just one element of your APR, which includes fees and charges. The APR vs. interest rate conversation continues to confuse those that aren’t familiar with it. In the family of interest rates, APY has a sister called APR, which stands for annual percentage rate. That said, different lenders might define an APR – and its associated charges – in different ways. As a result, the APR provides an all-inclusive cost of borrowing, enabling you to compare lenders who charge different fees and different interest rates. It pays to understand interest rate vs. APR. Both your loan’s interest rate and your APR are expressed in percentages. Interest rate definition. The difference between an APR and an interest rate is that the APR equals the interest rate plus other loan costs. An APR, or annual percentage rate, represents the total cost of taking out a mortgage, including the interest rate, lender fees and mortgage insurance. Comparing an APR vs. interest rate may seem a bit complicated at first, because it’s important to understand they aren’t one and the same. The APR includes the interest rate you pay on the debt, as well as costs related to funding your loan. The mortgage annual percentage rate is a charge required for the total loan amount and contains interest as well as all other expenses required for the loan procedure. APR on loan is a combination of the interest rate associated with your loan and any additional fees you might have to pay. Interest rate and APR are typically not interchangeable. Interest Rate vs. APR: Key Distinction. When you’re shopping for a personal loan, always read loan documents, ask questions about additional fees and do the math.Interest rate is one way to determine your loan’s cost and monthly payment, while APR can give you valuable insight into how much you’ll be paying in fees plus interest over the term of your loan. It's a percentage of the principal loan amount and is either fixed (as with a fixed-rate mortgage) or adjustable (as with an adjustable-rate mortgage, or ARM). Check out how to calculate APR and use it when you shop a loan! Use our calculator to find out the APR on your loan. If you’re buying a home, consider: Your down payment . However, there is no longer any reason to remain confused yourself. Interest rates are expressed as a percentage of the principal that a lender charges you for borrowing the money. If you borrow $100,000 at 5 percent with a fixed-rate loan, you'll pay interest equal to 5 percent of the principal balance over a year. An APR includes the interest plus any fees and charges. The interest rate is the annual cost of a loan to a borrower expressed as a percentage of the principal loan amount. Interest rate and APR do have some overlap, but they're not exactly the same. The idea behind APR is to help consumers understand the tradeoffs between interest rate and the fees paid at closing (such as paying higher fees to lower interest rates or increasing interest rates to cover closing costs). What is an APR vs. interest rate? 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