Interest Rate vs APR
The interest rate is the cost of borrowing the principal amount - the base rate lenders charge. APR (Annual Percentage Rate) includes the interest rate PLUS fees and closing costs, giving you the true annual cost of borrowing.
Example
Loan A: 6% interest, $5,000 fees on $100,000 = 6.55% APR. Loan B: 6.5% interest, $2,000 fees on $100,000 = 6.73% APR. Loan A is cheaper despite higher stated rate. APR reveals the true cost.
Key Takeaways
Use APR to compare loans accurately. The lowest APR means the lowest total cost of borrowing.