When you compare loans, you will see two numbers that look similar but are not the same: the interest rate and the APR. Knowing the difference helps you find the offer that actually costs less.
Interest rate: the cost of borrowing the loan principal, expressed as a yearly percentage. It is what the lender charges for the money itself.
APR (Annual Percentage Rate): a broader measure of cost. The APR includes the interest rate plus certain required fees rolled into the loan — such as origination fees or points. Because it captures fees as well as interest, the APR reflects the true annual cost of the loan.
The key point: the APR is usually equal to or higher than the interest rate. Two loans can advertise the same interest rate but have different APRs — the one with the higher APR has higher fees.
How to use them:
- Use the APR to compare loan offers against each other — it is the more complete number.
- Use the interest rate to understand the cost of the principal and to estimate the interest portion of your payment.
- Make sure you are comparing the same loan type and term.
A note on credit cards: for credit cards, the APR and interest rate are effectively the same, because card pricing generally does not roll in separate fees the way loans do — see how credit card APR works.
RMO discloses both the interest rate and the APR before you accept any loan. Explore RMO personal loan options.