APR vs. Interest Rate: What's the Difference?
Updated
If you're on a Galaxy Fold, consider unfolding your phone or viewing it in full screen to best optimize your experience.
Every loan has an interest rate and an annual percentage rate (APR). But what's the difference? What does APR have to do with your interest rate and how much you'll need to pay? In other words, what's the story behind APR vs. interest rate?
To understand APR vs. interest rate, it's important to understand a simple interest rate. A loan's interest rate represents the amount you'll pay for borrowing money over a period of time. Nothing else. No origination fee, closing costs, documentation fee, or other charges related to your loan are included. Say you're shopping for a personal loan, and the advertised rate is 4.99%. The first question you need to ask yourself is whether the rate on that personal loan includes any other fees.
Looking at interest rates can feel like ordering a hamburger only to find that the bun, ketchup, mustard, onions, and pickles aren't included in the stated price. The total cost of the burger is a different number altogether.
That's why it's important to look at the interest rate vs. APR. When it comes to a loan, the total cost is found in the annual percentage rate.
Researching a lender's interest charges is an important first step in comparing APR vs. interest rate. Lenders set their own interest rates and fees within legal limits. And because different borrowers get different rates, your interest rate might be different from a lender's advertised rate.
The interest rates advertised online are reserved for customers with the highest credit scores. If that's not you, the rate you're offered will be based on a number of factors:
That last point is especially important. For example, a credit card normally carries a higher interest rate. Mortgage and auto loan interest rates tend to be lower.
Make sure you're getting the best account for you by comparing savings rates and promotions. Here are some of our favorite high-yield savings accounts to consider.
| Account | APY | Promotion | Next Steps |
|---|---|---|---|
Open Account for SoFi Checking and Savings
On SoFi's Secure Website.
Rating image, 4.50 out of 5 stars.
4.50/5
Our ratings are based on a 5 star scale.
5 stars equals Best.
4 stars equals Excellent.
3 stars equals Good.
2 stars equals Fair.
1 star equals Poor.
We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best
= Excellent
= Good
= Fair = Poor |
up to 3.80%²
Rate info
You can earn the maximum APY by having Direct Deposit (no minimum amount required) or by making $5,000 or more in Qualifying Deposits every 30 days. See SoFi Checking and Savings rate sheet at: https://www.sofi.com/legal/banking-rate-sheet.
Min. to earn: $0
|
New customers can earn up to a $300 bonus with qualifying direct deposits!¹
|
Open Account for SoFi Checking and Savings
On SoFi's Secure Website. |
Open Account for CIT Platinum Savings
On CIT's Secure Website.
Rating image, 4.50 out of 5 stars.
4.50/5
Our ratings are based on a 5 star scale.
5 stars equals Best.
4 stars equals Excellent.
3 stars equals Good.
2 stars equals Fair.
1 star equals Poor.
We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best
= Excellent
= Good
= Fair = Poor |
4.10% APY for balances of $5,000 or more
Rate info
4.10% APY for balances of $5,000 or more; otherwise, 0.25% APY
Min. to earn: $100 to open account, $5,000+ for max APY
|
Earn a bonus of at least $225 after a one-time deposit of $25,000+.
Transfer a one-time deposit of $25,000-$49,999.99 for a bonus of $225. Transfer a one-time deposit of $50,000+ for a bonus of $300. Account must be opened with code PS2025 while this promotion lasts, and funded within 30 days. Bonus will be fulfilled within 60 days from the funding date. There is no period of time where the customer will be required to maintain the funds. Account must be open when bonus is credited. One bonus per account and primary customer. Bonus will be credited into the Platinum Savings Account that fulfills the funding requirement. Funding can be deposited all at once or incrementally.
|
Open Account for CIT Platinum Savings
On CIT's Secure Website. |
Open Account for American Express® High Yield Savings
On American Express's Secure Website.
Rating image, 4.00 out of 5 stars.
4.00/5
Our ratings are based on a 5 star scale.
5 stars equals Best.
4 stars equals Excellent.
3 stars equals Good.
2 stars equals Fair.
1 star equals Poor.
We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best
= Excellent
= Good
= Fair = Poor |
3.70%
Rate info
3.70% annual percentage yield as of April 6, 2025. Terms apply.
Min. to earn: $0
|
N/A
|
Open Account for American Express® High Yield Savings
On American Express's Secure Website. |
SoFi disclosure:
¹ New and existing Checking and Savings members who have not previously enrolled in Direct Deposit with SoFi are eligible to earn a cash bonus of either $50 (with at least $1,000 total Direct Deposits received during the Direct Deposit Bonus Period) OR $300 (with at least $5,000 total Direct Deposits received during the Direct Deposit Bonus Period). Cash bonus will be based on the total amount of Direct Deposit. Direct Deposit Promotion begins on 12/7/2023 and will be available through 1/31/26. See full bonus and annual percentage yield (APY) terms at sofi.com/banking#1.
² SoFi members who enroll in SoFi Plus with Direct Deposit or by paying the SoFi Plus Subscription Fee every 30 days or with $5,000 or more in Qualifying Deposits during the 30-Day Evaluation Period can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. Members without either SoFi Plus or Qualifying Deposits, during the 30-Day Evaluation Period will earn 1.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Only SoFi Plus members are eligible for other SoFi Plus benefits. Interest rates are variable and subject to change at any time. These rates are current as of 1/24/25. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet. See the SoFi Plus Terms and Conditions at https://www.sofi.com/terms-of-use/#plus.
³ We do not charge any account, service or maintenance fees for SoFi Checking and Savings. We do charge a transaction fee to process each outgoing wire transfer. SoFi does not charge a fee for incoming wire transfers, however the sending bank may charge a fee. Our fee policy is subject to change at any time. See the SoFi Checking & Savings Fee Sheet for details at sofi.com/legal/banking-fees/.
⁴ SoFi Bank is a member FDIC and does not provide more than $250,000 of FDIC insurance per depositor per legal category of account ownership, as described in the FDIC’s regulations.
Any additional FDIC insurance is provided by the SoFi Insured Deposit Program. Deposits may be insured up to $3M through participation in the program. See full terms at SoFi.com/banking/fdic/sidpterms. See list of participating banks at SoFi.com/banking/fdic/participatingbanks.
⁵ We’ve partnered with Allpoint to provide you with ATM access at any of the 55,000+ ATMs within the Allpoint network. You will not be charged a fee when using an in-network ATM, however, third-party fees incurred when using out-of-network ATMs are not subject to reimbursement. SoFi’s ATM policies are subject to change at our discretion at any time.
⁶ Early access to direct deposit funds is based on the timing in which we receive notice of impending payment from the Federal Reserve, which is typically up to two days before the scheduled payment date, but may vary.
⁷ Overdraft Coverage is limited to $50 on debit card purchases only and is an account benefit available to customers with direct deposits of $1,000 or more during the current 30-day Evaluation Period as determined by SoFi Bank, N.A. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the“30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Members with a prior history of non-repayment of negative balances are ineligible for Overdraft Coverage.
The interest rate plays a large part in determining your monthly payment. Here's how it works:
Let's say you want to borrow $30,000 for a new car loan. The interest rate at Bank A is 6.75%. If you take out a five-year loan, your monthly payment will be $590.50. You investigate and find that Bank B offers an interest rate of 6%, giving you a monthly payment of $579.98.
Your monthly payment is based on the interest rate on your promissory note, not the APR. The slightly higher rate at Bank A makes their monthly payment $10.52 more each month than Bank B's monthly payment. It doesn't sound like much, but over the loan's life, that difference amounts to $631.20 -- enough to buy a set of tires or have your oil changed 10 times.
To save money, compare the rates of several lenders before signing on the dotted line. However, keep in mind that you'll need to look at the APR vs. interest rate to compare the total cost of the loans, which includes more than the monthly payment.
The value of knowing the difference between the APR vs. interest rate is recognizing the "real" cost of a loan. A loan's annual percentage rate (APR) includes all those pesky fees you'll pay for borrowing money. Unlike a stripped-down, bare-bones interest rate, APR reveals the full price of the loan expressed as a percentage. It shows the full cost of taking out a loan, with all the bells and whistles you'll pay for on top of regular interest.
The fees attached to your loan (and figured into your APR) depend on the type of loan you've applied for. Here's a sampling of the fees you can expect to see in your APR:
APR vs. interest rate applies to all types of loans. Unless a lender specifically indicates that a rate is the APR, you must ask what the APR will be.
At the turn of the 20th century, banks could charge whatever interest rate they wanted. Without regulations in place, they routinely earned between 10% and 500% annually on mortgages and private loans. Americans in need of a home loan had to work with mortgage lenders who acted more like loan sharks than bankers. APR vs. interest rate was certainly not part of any upfront disclosures.
In 1968, Congress passed the Truth in Lending Act (TILA), and part of that act helped spell out the differences between APR vs. interest rate. Lenders now have to give consumers a complete picture of how much a loan would cost, including fees.
The history of lending is a surprisingly fascinating topic. If you want to find out more, I highly recommend Loan Sharks: The Birth of Predatory Lending from the Brookings Institution.
A single credit card can carry several types of APRs. To understand potential interest costs, it's important to know the difference between different credit card APRs.
Don't you wish you could take a peek inside a credit card expert's wallet sometimes? Just to see the cards they carry? Well, you can't look in anybody's wallet, but you can check out our experts' favorite credit cards. Get started here:
There are two types of interest rates: fixed and variable.
A fixed interest rate never changes. No matter how many times the Federal Reserve changes the interest rate over the life of your loan, a fixed interest rate loan will never change. It's predictable and easy to budget for.
Variable interest rates are tied to an index rate -- if that rate changes, so does the loan's interest rate. They can fluctuate in a way that lowers your payment. Unfortunately, they can also go up and increase your monthly payment.
A lower upfront interest rate may attract you to a variable rate loan, but it's important to remember that the rate is likely to change. APR vs. interest rate applies to variable as well as fixed-rate loans. Ask your lender what your maximum rate may be and how much your monthly payment will be at that rate.
You might see a loan described as "fixed-interest rate" or "variable APR." That's because a loan's interest rate is included in the APR and can be either fixed or variable.
Both interest rate and APR tell you important things about a loan. Comparing the APR of a loan to its interest rate is very helpful for several reasons.
APR vs. interest rate bottom line: Both the interest rate and APR tell you about the fees you'll pay for a loan. But the APR includes all lender fees, so it's generally more useful. However, you'll want to compare them both. For example, if you're interested in knowing your monthly payment, you'll need to look at the interest rate -- not your loan's APR. That's because many of the fees included in the APR are paid up-front, not monthly.
Now that you understand the difference between interest rate and APR, let's talk a little about how to find the best options for your loans.
It's important to note that APR can also benefit you. Let's say you open a certificate of deposit (CD). APR represents the amount the bank will pay in interest on that financial instrument. The same principle applies when you open a money market account (MMA).
Don't be shy. Let lenders know that you understand APR vs. interest rate and ask about the fees they include. It's your money, and you have the right to keep as much of it as possible.
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. Motley Fool Money does not cover all offers on the market. Motley Fool Money is 100% owned and operated by The Motley Fool. Our knowledgeable team of personal finance editors and analysts are employed by The Motley Fool and held to the same set of publishing standards and editorial integrity while maintaining professional separation from the analysts and editors on other Motley Fool brands. Terms may apply to offers listed on this page.
