What is the difference between an interest rate and the Annual Percentage Rate (APR) in an auto loan?
An auto loan’s interest rate is the cost you pay each year to borrow money expressed as a percentage. The interest rate does not include fees charged for the loan.
The Annual Percentage Rate (APR) is the cost you pay each year to borrow money, including fees, expressed as a percentage. The APR is a broader measure of the cost to you of borrowing money since it reflects not only the interest rate but also the fees that you have to pay to get the loan. The higher the APR, the more you’ll pay over the life of the loan.
An auto loan’s interest rate and APR are two of the most important measures of the price you pay for borrowing money. The federal Truth in Lending Act (TILA) requires lenders to give you specific disclosures about important terms, including the APR, before you are legally obligated on the loan. Since all lenders must provide the APR, you can use the APR to compare auto loans. Just make sure that you are comparing APRs to APRs and not to interest rates. The two terms are not the same.
In general, dealers and lenders are not required to offer the best rates available. You can save money over the life of the loan by negotiating for the best interest rate and the lowest APR available to you.