You can easily get overwhelmed when searching for a loan. While reading the contract, the various terminology, acronyms, and other jargon can be confusing, especially when they’re combined with a bunch of numbers and percentages.
However, knowing the vocabulary is essential to understand what you’re signing for. Two terms you’ll see frequently throughout your research and shopping experience are APR and interest rates. But what’s the difference?
To get the best use of your loan, whether it’s an auto, personal, or home loan, it’s essential to know what these terms mean. This can help you create a budget and find the best loan. Keep reading to understand the difference between APR and interest rates.
What Is an Interest Rate?
The interest rate gets used to calculate the interest expense on your loan. In other words, it’s the percentage you will pay the lender during your term. This is essentially a fee for borrowing from them. You may sign for a fixed rate, which stays consistent throughout your loan term agreement. On the other hand, you may sign a loan with a variable rate, meaning they can fluctuate depending on the financial market.
What Is an APR?
Your APR is your annual percentage rate. This percentage includes your interest rate and additional expenses associated with the loan. These fees can include closing fees, rebates, broker fees, and other costs incurred by your lender. Knowing your loan’s APR will help you compare loans and their associated prices.
What’s the Difference Between the Two?
It’s easy to confuse these two terms due to their similarity in reflecting the cost of borrowing from the lender. However, the difference between APR and interest rates is how they’re calculated and what their percentages represent. While interest rates are a closer look at what you will pay to borrow the loan, the APR includes the overall cost of the loan, including other fees that occur down the line.
At Superior Financial, we always look forward to helping our partners reach their financial goals. We’re a personal loan company that cares and wants to lend a helping hand whenever possible. From auto loans to personal loans to consolidation loans, we have the financial solutions to aid you. For any questions about our services, feel free to contact us.