| Key Aspect | APR | Interest Rate |
|---|---|---|
| Definition | Annual Percentage Rate (APR) includes the interest rate PLUS broker fees, discount points, and some closing costs. | The cost you pay each year to borrow the money, expressed as a percentage, excluding fees. |
| Value | Usually higher than the nominal interest rate. | Usually lower than the APR. |
| Purpose | Provides a more complete picture of the total cost of the loan. | Used to calculate your actual monthly payment. |
| Best Used For | Comparing different loan offers from different lenders. | Calculating your monthly cash flow requirement. |
Conclusion & Takeaway
When comparing loans, always compare the APRs, not just the interest rates. A loan with a lower interest rate but high fees might actually cost you more over time than a loan with a slightly higher interest rate but no fees.