Interest rate vs. APR
The interest rate sets your payment. The APR adds the fees, so it's the number to compare loans by.
Last reviewed October 13, 2026.
Two rates for the same loan
The interest rate is what the lender charges on the balance you owe; it determines your monthly payment. The annual percentage rate (APR) is the yearly cost of the loan once required fees are included, worked out as if those fees were extra interest. US law (the Truth in Lending Act) requires lenders to show it so that loans with different fees can be compared fairly.
With no fees, the two are the same. With fees, the APR is higher, because you repay the full amount with interest but receive less.
How an origination fee raises the APR
Many personal lenders charge an origination fee and take it out of the loan before paying you. On a $10,000 loan at a 10% interest rate:
| Fee | You receive | APR, 2 years | APR, 5 years |
|---|---|---|---|
| 0% | $10,000.00 | 10.00% | 10.00% |
| 1% | $9,900.00 | 11.01% | 10.43% |
| 3% | $9,700.00 | 13.06% | 11.32% |
| 5% | $9,500.00 | 15.18% | 12.24% |
| 8% | $9,200.00 | 18.48% | 13.66% |
The same fee hurts more on a shorter loan, because it's spread over fewer years. That is why a small fee on a long mortgage barely moves its APR, while the same percentage on a two-year personal loan can add several points. Try any loan in the personal loan calculator.
Mortgage APRs
A mortgage's APR includes the interest rate plus costs such as discount points, origination charges and mortgage insurance, but not every closing cost (title insurance and appraisals, for example, are usually left out). You'll find it on page 3 of the Loan Estimate every lender must give you. Because mortgages last so long, a quarter-point gap between rate and APR can still mean thousands of dollars.
One caution: a mortgage APR assumes you keep the loan for its full term. If you expect to sell or refinance within a few years, upfront fees cost you more than the APR suggests, so compare the total cost over the years you expect to keep it. The refinance calculator does that for a refinance.
Using APR to compare loans
- Compare like with like: the same loan amount, term and type. APRs on a 3-year and a 5-year loan aren't directly comparable.
- Lower APR, lower cost, if you'll keep the loan for its full term.
- Check for fees the APR leaves out, such as late fees or prepayment penalties, which depend on what you do later.
Every Money Anvil calculator shows the full cost behind its result; the methodology page explains how the APR here is calculated.