What is the difference between APR vs interest rate?

Do you know the difference between APR and Interest Rate? Many consumers are often confused about the difference between the two, particularly when it comes to their mortgage. They can also be different when applying for a line of credit as well. APR and interest rate are in fact two different numbers and it is important to understand their difference.

The interest rate is the amount charged, expressed as a percentage of the principal, by a lender to a borrower for the use of assets, in this case a mortgage loan. This is the number that your creditor or lender uses to calculate the monthly payments.

The annual percentage rate (APR) includes the monthly interest rate, but it also includes up-front costs and any annual fees associated with the account. In a practical sense, the APR is the true cost of the mortgage. Two mortgages with the same monthly interest rate may have very different APRs, and the mortgage with the higher APR will end up costing you more per year.