APR Versus Interest Rates:  What's the Difference?

What's The Difference Between Interest Rate and APR?

APR Versus Interest Rates:  What's the Difference?


What’s the difference? In a nutshell - transparency. The Annual Percentage Rate (APR) provides you the full view of the total cost of your loan on an annualized basis and includes your interest rate and fees. The interest rate only includes the annual interest percentage you are charged to borrow money, but unlike APR, leaves out other finance charges incurred as part of the loan.


Your interest rate is the annualized base cost of borrowing money for the duration of your loan and is a percentage of the principal loan amount. It can be fixed (it will not change) or variable (it could change over time). All Skills Fund loans are fixed – your rate will not go up. An interest rate is shown as a percentage but does not include additional finance charges that will also be incurred. It gets tricky because some lenders try to add lots of fees that increase the cost of the loan even if the interest rate is low.


The Annual Percentage Rate (APR) is the big picture on your loan. It outlines the annual cost of your loan and includes the origination fee, financing charges, capitalized interest, and the interest rate to reflect the total annualized cost of the loan. Like a stand-alone interest rate, it’s shown as a percentage. APRs are a great way to gauge the total cost of your loan. At Skills Fund, we commit to including APR anywhere we communicate Interest Rates so you can make an informed decision.

The Federal Truth in Lending Act requires that every consumer loan agreement disclose the APR, and is a great way to gauge how much you will pay to borrow money from a lender.

QUESTIONS? Contact us anytime – we’re happy to help!

Originally published January 19, 2016.