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What is the difference between a loan interest rate and the APR?

A loan’s interest rate is the cost you pay to the lender for borrowing money. The Annual Percentage Rate (APR) is a measure of the interest rate plus the additional fees charged with the loan. Both are expressed as a percentage.

A loan’s interest rate and APR are two of the most important measures of the price you pay for borrowing money.

Interest rate

An interest rate is the cost you pay to the lender for borrowing money to finance your loan, on top of the loan amount or your principal. The higher the interest rate, the more you’ll pay over the life of your loan.

Annual Percentage Rate (APR)

The APR is the interest rate plus any additional fees charged by the lender. This includes origination charges and other fees charged when the loan is made.

How to get the best rates

In general, the higher your credit score, the lower your rates will be. However, dealers and lenders are not required to offer you the best available rates. The best way to reduce your costs is to shop around and compare rates between different lenders.

What lenders are required to provide

The federal Truth in Lending Act (TILA) requires lenders to give you specific disclosures about the important terms in your loan, including the APR. They must provide this info before you finalize your car loan. Since all lenders must provide the APR, you can use the APR to compare auto loans. Just make sure you’re comparing APRs to APRs and not APRs to interest rates because the two are not the same.

Know before you shop for a car or auto loan

By asking questions before you shop, you’re more likely to get the best interest rates and loan terms for your budget. You can also save yourself valuable time and money and reduce stress.

Ask more essential questions before you shop for auto loans