What is APR and how is it different from interest rate?
APR (Annual Percentage Rate) is the true yearly cost of a loan, including interest plus fees like origination charges, while the interest rate only reflects the cost of borrowing the principal. APR is almost always higher than the stated interest rate.
Why is my APR higher than the interest rate my lender quoted?
APR includes additional loan costs such as origination fees, closing costs, or points spread over the loan term, while the quoted interest rate covers only the cost of the principal.
What is considered a good APR for a loan?
It depends on the loan type and your credit profile, but generally a lower APR is better; well-qualified borrowers often see personal loan APRs in the single digits to low teens, while rates above 20% are considered high.
Can APR be lower than the interest rate?
Rarely, but it can happen if a lender offers credits or rebates that offset fees, effectively reducing the total cost below the nominal interest rate. In most cases, though, APR is equal to or higher than the interest rate.
Is APR the same as APY?
No. APR measures the annual cost of borrowing including fees, while APY (Annual Percentage Yield) reflects the return on savings or investments and accounts for compounding interest.