APR is usually higher than your interest rate because it encompasses multiple loan costs. The difference between APRs and interest rates, and the other finer points of borrowing money, can be a bit confusing at first glance.
If you’ve shopped for new and used cars lately, you’ve probably discovered that new cars are usually available with better interest rates than used models. That means it can sometimes be less expensive to buy a new car than a used one — even if the new car’s purchase price is higher.
As Blue said, in APR the interest rate is reflected including points and associated fees. It is for this reason the APR is always higher than the interest rate of the loan and the financed amount is lower than the loan amount.
The APR will be higher than the advertised interest rate if there are other charges and it must be included in any disclosures regarding financing. Because each creditor has their own rate structure, penalties, and transaction fees, it can get confusing to understand exactly how much you are paying for an item.
Loans with high up-front fees and lower interest rates show lower APRs. But you won’t be able to spread the up-front costs if you pay off the loan after just a few years. If you pay your loan off early, the actual APR you’ll pay is higher than what you see quoted. APR is most accurate if you plan to keep a loan for its entire term.
The APR should always be greater than or equal to the nominal interest rate, except in the case of a specialized deal where a lender is offering a rebate on a portion of your interest expense.
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Interest rate vs. APR. The interest rate is the cost of borrowing the principal loan amount. It can be variable or fixed, but it’s always expressed as a percentage. An APR is a broader measure of the cost of a mortgage because it includes the interest rate plus other costs such as broker fees, discount points and some closing costs, expressed as a percentage.