Interest Rate vs APR: What Is the Difference?

What an Interest Rate Tells You

The interest rate describes the charge for borrowing under an interest-bearing financing structure. It shows how interest is charged on the amount borrowed. The final agreement controls the rate and the way interest is calculated, so the same rate does not apply to every borrower or every program.

What APR Tells You

APR, or annual percentage rate, can communicate an annualized cost of borrowing under applicable disclosure rules. It can include certain charges in addition to interest. Because of that, APR is often higher than the interest rate on the same financing.

Why the Two Numbers Differ

The difference usually comes from charges that APR includes and the interest rate does not. When you review an offer, ask two questions:

• Which fees are included in the APR?
• Which fees remain separate and are paid in addition to it?

When APR Does Not Apply

Some business products use a different pricing method. For those products, review the product-specific disclosure rather than forcing an APR comparison where it does not apply. A number labeled as an interest rate should not be read as an APR unless the agreement says so. For example, the average interest rate of 3% to 13% published for the Business Line of Credit is an interest rate figure, not an APR.

Look Beyond Both Numbers

Neither figure tells the whole story on its own. Before you accept any financing, also check:

• The amount you actually receive after any deductions
• How often payments are due: daily, weekly, or monthly
• The number of payments and the length of the term
• The total amount you will repay over the life of the agreement

How The Final Loans Approaches Rates

There is no single public rate for every borrower. Rates and terms depend on the applicant profile, credit history, and other factors reviewed by The Final Loans. Your written financing agreement controls the final rate, payment, and repayment obligations. Read it in full and ask questions before you sign.

Keep Comparing

Our guide to comparing funding costs walks through a full comparison step by step, from the amount you receive to the total repayment obligation.