APR vs. Interest Rate on a Personal Loan: Which Number Should You Compare?
APR and interest rate both describe the cost of borrowing money, but they answer different questions. Interest rate shows what you're charged on your outstanding balance, while APR adds certain finance charges, like loan origination fees, to show a more complete annualized cost. When comparing personal loan offers, APR is generally the more useful starting point, but your interest rate, repayment term, and total cost still deserve a close look. In our previous article, we walked through seven numbers that matter [1] when comparing personal loan offers. Two of the most important—and most commonly confused—are the interest rate and the annual percentage rate (APR). These terms often get used interchangeably, but they don't necessarily represent the same borrowing cost. When comparing personal loan offers, you may notice that each one lists both an interest rate and an APR. At first glance, the numbers can look nearly identical. In some cases, they are. In others, the gap b...
