What’s the Difference Between APR and Interest Rate?

The difference between the interest rate and the APR (Annual Percentage Rate) primarily lies in the costs they represent and how they are calculated:

1. **Interest Rate**:

   - **Definition**: The interest rate is the percentage of the loan amount that the lender charges for borrowing money.

   - **Components**: It only includes the cost of borrowing the principal amount.

   - **Calculation**: Calculated annually, but often quoted as an annual rate and may not include any other fees or costs.

2. **APR (Annual Percentage Rate)**:

   - **Definition**: The APR is a broader measure of the cost of borrowing money.

   - **Components**: It includes the interest rate plus other costs associated with taking out the loan, such as lender fees, closing costs, and insurance.

   - **Calculation**: Calculated annually, providing a more comprehensive picture of what a loan will cost over its term.

### Key Differences:

- **Scope**: The interest rate is solely the cost of borrowing the principal, while the APR includes both the interest rate and additional fees.

- **Comparison**: APR provides a more accurate comparison between different loan offers, as it reflects the total cost of the loan.

- **Disclosure**: Lenders are required to disclose the APR to borrowers to ensure they understand the full cost of the loan.

In summary, while the interest rate tells you the cost of borrowing the principal amount, the APR provides a more complete picture of the total cost of the loan, including additional fees and charges.