Quick answer:
- An interest rate is the cost of borrowing money, shown as a percentage of the amount you borrow.1
- An APR, or annual percentage rate, is the total yearly cost of borrowing money. It often includes other fees charged to originate the loan, such as points or broker fees, in addition to the interest rate.1,2
For most credit cards, the interest rate and the APR are the same number. That’s not true for every kind of loan: mortgages, personal loans, and other installment credit APRs often include additional fees.2
That makes the APR a more complete measure of what a loan actually costs over a year, which is why it’s usually higher than the bare interest rate on the same loan.
| Interest rate | APR | |
|---|---|---|
| What it measures | The cost of borrowing, as a percentage of the amount borrowed | The total yearly cost of borrowing |
| What it includes | Interest only | Interest plus fees charged when the loan is made, such as points or broker fees |
| On most credit cards | Same number as the APR | Same number as the interest rate |
| On mortgages, personal loans, and other installment loans | Usually lower than the APR | Usually higher, because it includes fees |
Sources: Consumer Financial Protection Bureau, What is the difference between a loan interest rate and the APR?, and Credit cards key terms.
Keep this in mind when comparing offers. Two loans with the same interest rate can have different APRs if one carries more upfront fees. Always compare APR to APR, not APR to interest rate.
Lenders are required to disclose the APR before you agree to a loan, precisely so you can compare products on an apples-to-apples basis rather than getting misled by a low headline interest rate that hides higher fees elsewhere.1
How APR is calculated
APR is calculated using a standard formula so it means the same thing regardless of lender:
APR = (((Interest charges + fees) / Principal) ÷ Number of days in the loan term) × 365 × 100
For most credit cards, since there typically isn’t a separate origination fee baked into the cost of borrowing, the interest rate and the APR calculate out to the same number.2
Real-world example of APR vs interest rate
For payday loans, the gap between interest rate and APR can look extreme. A $15 fee on a $100 two-week payday loan works out to a 15% rate for that loan term, but expressed as an annualized APR, it comes to nearly 400%.3
The APR isn’t a different fee. It’s the same cost restated on a standard yearly basis so it can be compared to other forms of credit.
What a few points of APR actually cost you
The difference between APRs compounds. For example, if you have a $5,000 balance and are paying it down by minimum payments of 1% of the balance plus that month’s interest (or $35, whichever is higher), a few points of APR can increase your costs and extend your timeline for repayment:
At 18% APR, payoff takes about 15.8 years and costs roughly $6,150 in interest.
At 24% APR, payoff stretches to nearly 16.8 years and costs about $8,440 in interest.
That’s a difference of more than $2,280 and close to a full year longer in debt, on the exact same starting balance, driven entirely by a 6-percentage-point gap in APR.
| APR | Time to pay off | Total interest paid | Total paid |
|---|---|---|---|
| 18% | 15.8 years | $6,154 | $11,154 |
| 20% | 16.1 years | $6,910 | $11,910 |
| 22% | 16.4 years | $7,673 | $12,673 |
| 24% | 16.8 years | $8,442 | $13,442 |
Assumptions: $5,000 starting balance; minimum payment of 1% of the balance plus that month’s interest, or $35, whichever is higher; interest calculated monthly; no new charges. Figures are Debt Disclosure Project calculations.
Is the lowest APR always the cheapest option?
Not always.
The length of the loan, how quickly you can repay the balance, and any other optional charges or other terms can affect the total cost.
A lower rate that stretches over a longer repayment period can mean you pay more total interest than a higher APR loan that you repay quickly.
The same applies to debt programs that advertise a lower interest rate. A debt management plan does not reduce principal: you repay 100% of the balance, plus interest at the reduced rate, plus agency fees. On $20,000 of credit card debt paid at $500 a month, a debt management plan totals about $25,041, or 125% of the balance, over 50 months.4
When comparing offers, look at both the APR and the total dollar amount you’re expected to repay. A side-by-side ranking of credit card payoff options found that even a consolidation loan with a lower interest rate can cost more than the original balance once interest is added up over the full term, which is why total dollars paid, not the headline rate, is the better measure.
Frequently asked questions
Why is my credit card’s APR the same as its interest rate?
Most credit cards don’t charge a separate fee to originate the balance, so there is nothing extra to fold into the APR. On a card, the interest rate is usually expressed as a yearly figure, which is the APR.2
Do lenders have to tell me the APR?
Yes. The federal Truth in Lending Act requires lenders to disclose the APR, along with other key loan terms, before you agree to the loan.1 That disclosure is what lets you compare offers from different lenders on the same basis.
Should I compare loans by APR or by total cost?
Look at both. APR shows the yearly cost of borrowing, including fees, but the total dollars you repay also depend on how long the loan runs. A lower rate over a longer term can cost more in total than a higher rate repaid quickly.
Sources
1. Consumer Financial Protection Bureau. (n.d.). What is the difference between a loan interest rate and the APR? https://www.consumerfinance.gov/ask-cfpb/what-is-the-difference-between-a-loan-interest-rate-and-the-apr-en-733/
2. Consumer Financial Protection Bureau. (n.d.). Credit cards key terms. https://www.consumerfinance.gov/consumer-tools/credit-cards/answers/key-terms/
3. Consumer Financial Protection Bureau. (n.d.). What is an annual percentage rate (APR) and why is it higher than the interest rate for my payday loan? https://www.consumerfinance.gov/ask-cfpb/what-is-an-annual-percentage-rate-apr-and-why-is-it-higher-than-the-interest-rate-for-my-payday-loan-en-1625/
4. Debt Disclosure Project. (2026). Cost calculator. https://www.debtdisclosureproject.org/tools/cost-calculator/