Is There a Difference Between APR and Interest Rate?

April 6, 2012 | Category: Mortgage | Tags: ,

Is there a difference between APR and Interest Rate?

Short Answer?

Yes, APR stands for Annual Percentage Rate, this is the rate you will be charged annually and can be used to calculate your monthly payment. The “Interest Rate” is the percentage rate that the lender charges overall.

Long Answer:

The difference is substantial and very important when determining the best loan for you. When a lender quotes an interest rate for a loan it may not include some of the additional fees that the lender will be charging for a loan. This is why it is required by law to disclose to the consumer the “annual percentage rate.”

The annual percentage rate includes lender fees and is based on an annual basis, this percentage is typically more than the interest rate quoted by a lender, because it includes things like prepaid interest, private mortgage insurance, closing fees, points, etc. These fees are all totaled on the annual basis and included on top of the interest paid on the loan, showing what the loan actually is costing on an annual basis.

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