The Difference Between Interest Rates and APR

I’m sharing the difference between interest rates and APR, and when to use each number.

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Today’s discussion is about the difference between the interest rate and APR. Knowing the difference between the two can literally save you thousands of dollars on the cost of your home loan.

The main difference between the two numbers is that the interest rate calculates your monthly payment, whereas the APR calculates the total cost of the loan.

The interest rate is the cost of the principal money you are borrowing. The rate can be fixed or variable depending on what type of program you’re working with, and it’s always based as a percentage. APR (annual percentage rate) is the interest rate along with other costs with the purchase of the loan. These could include the appraisal, lender fees, discount points, anything that has to do with the purchasing a home loan.

The main difference between the two numbers is that the interest rate calculates your monthly payment, whereas the APR calculates the total cost of the loan. When looking for the lowest monthly payment, always focus on the interest rate. If you’re looking at what the total cost of the money you’re borrowing will be, look at the APR.

If you have any questions about interest rates, APR, or want help looking at these two numbers side by side, give me a call or send me an email. I look forward to hearing from you soon.