Not a lender. We don't make loans or credit decisions and can't guarantee approval. Rates shown are national averages, not offers. How we make money
ExpressApprovals

APR vs interest rate: how to compare loan offers

Last reviewed: 6 min readComparing offers
Not a lender. Express Approvals is not a lender or mortgage broker, doesn't make loans or credit decisions and can't guarantee approval, rates or terms. Rates shown are national averages, not offers.
Quick answer

The interest rate is what you pay to borrow the principal. The APR (annual percentage rate) is a broader measure of yearly cost that also includes certain fees, such as points and origination charges. Comparing APRs helps you compare offers with different fees. But the APR assumes you keep the loan for its full term, so if you'll pay off or refinance early, also compare the upfront costs directly.

Interest rate vs APR

The CFPB explains that the APR reflects the interest rate plus points, broker fees and certain other charges, so it's usually higher than the interest rate. Lenders must disclose the APR under the Truth in Lending Act.

Hypothetical example: two $300,000, 30-year loans both at 7.00%. Offer A charges $2,000 in prepaid finance charges; Offer B charges $8,000. Same rate, same monthly payment ($1,995.91), but Offer B's APR is higher (about 7.27% vs about 7.07%) because you pay more upfront. Try it in the loan comparison calculator.

Limits of the APR

  • It spreads upfront fees over the full term. If you'll keep the loan for only a few years, a low-fee loan can be cheaper even with a slightly higher APR.
  • For ARMs, the APR assumes the index stays as it is today.
  • Not every cost is included; title insurance and appraisal fees on a mortgage generally aren't.

A 5-step method for comparing offers

  1. Get quotes on the same day for the same loan amount, term and type.
  2. Line up the interest rate, APR, monthly payment and total upfront fees.
  3. For mortgages, compare Loan Estimate sections A, B and C and the page-3 "In 5 Years" figure.
  4. Estimate how long you'll keep the loan and compare cost over that period.
  5. Check features: prepayment penalties, rate caps, balloon payments, rate-lock terms.

Frequently asked questions

Why is APR higher than the interest rate?

Because the APR also includes certain fees, such as points and origination charges, expressed as a yearly rate.

Should I always pick the lowest APR?

Not always. The APR assumes you keep the loan for the full term. If you'll sell or refinance early, a loan with lower upfront fees may cost less.

Does APR include closing costs?

It includes some, such as points and lender origination fees, but not all; for mortgages, title insurance and appraisal fees are generally excluded.

Sources

  1. CFPB: Mortgage interest rate vs APR (accessed October 29, 2026)
  2. CFPB: A loan's interest rate vs its APR (accessed October 29, 2026)
  3. CFPB: Loan Estimate explainer (accessed October 29, 2026)
  4. CFPB: How do I compare auto loan offers? (accessed October 29, 2026)

Equal Housing Opportunity. We support the Fair Housing Act and the Equal Credit Opportunity Act: it is illegal to discriminate in housing or lending on the basis of race, color, religion, national origin, sex (including sexual orientation and gender identity), familial status, disability or, for credit, age, marital status or receipt of public assistance. Learn more.

Written by the Express Approvals editorial team. We check every figure against official sources such as the CFPB, HUD, VA, USDA, FHFA, the FTC, Freddie Mac and the Federal Reserve, and link them below. We are not a lender; this is general information, not personal financial advice. How we research and update guides.

Related guides