💡 APR vs. Interest Rate: What’s the Real Cost of Your Loan?
Is a 6.25% interest rate better than 6.5% APR? Learn the difference between APR and interest rate, and why both matter when reviewing your mortgage or investment loan.
💬 Introduction
When you look at a Loan Estimate or rate sheet, two numbers usually stand out: the interest rate and the APR.
They might look similar — but they’re not the same. In fact, misunderstanding the difference can cost you thousands over the life of your mortgage.
At Loan Verdict, one of the most common questions we hear is:
“What’s the difference between the interest rate and the APR?”
Let’s break it down — and show you how to use both numbers to protect your financial future.
📉 What Is the Interest Rate?
Your interest rate is the base cost of borrowing money. It tells you how much interest you'll pay each year on the principal loan amount.
For example:
If you borrow $400,000 at a 6.25% interest rate, you're paying 6.25% annually on the loan’s remaining balance.
✅ This number does NOT include closing costs, lender fees, or other charges.
📊 What Is APR?
APR stands for Annual Percentage Rate. It reflects the total cost of the loan, not just the interest.
Your APR includes:
Interest rate
Lender fees (origination, points, processing, etc.)
Some third-party fees (like underwriting or admin charges)
📌 The APR helps you compare loans on equal footing, especially if one has a lower rate but higher fees.
📚 Real-World Example
Let’s say two lenders offer the following:
| Offer | Interest Rate | APR | Origination Fee | Points |
|---|---|---|---|---|
| A | 6.25% | 6.40% | $995 | 0 |
| B | 6.00% | 6.65% | $2,995 | 1.5 |
👉 Lender B offers a lower rate, but you're paying more upfront, and the true cost of the loan (the APR) is higher.
APR shows you the full picture.
🚨 Why This Matters
Many lenders advertise ultra-low interest rates to grab attention — but quietly build in fees that raise your true cost.
If you only focus on the interest rate, you might accept a loan that looks great on the surface… but drains your budget long-term.
APR helps you:
Avoid getting “rate-shocked” at closing
Compare apples-to-apples across lenders
See whether points or origination fees are actually worth it
🧠 What Loan Verdict Can Do
When we review your loan at Loan Verdict, we:
Explain both the interest rate and APR — and how they affect your monthly payment and long-term cost
Compare multiple loan structures to see which offers real savings
Flag inflated APRs disguised by low rates
Give you a simple, honest recommendation: Accept, Negotiate, or Walk Away
🔗 Related Resources:
APR vs. Interest Rate – CFPB
What Is a Good APR in 2024? – NerdWallet
🙌 Final Thoughts
Interest rate gets the attention. But APR tells the truth.
Before you sign anything, make sure you’re looking at the real cost of the loan — and that it aligns with your goals.
We can help with that.
✅ Call to Action
Schedule your no-pressure loan review today at www.loanverdict.com
We’ll explain your numbers, protect your bottom line, and help you make a decision that truly works for you.
