Question 1

What is the difference between interest rate and APR?

Accepted Answer

The interest rate is the cost of borrowing the money. APR (annual percentage rate) is the interest rate plus most of the loan's fees, shown as a single yearly rate. APR is usually higher than the interest rate when fees are involved.

Question 2

Why is my APR higher than the interest rate?

Accepted Answer

Fees. If the lender charges an origination fee, that fee gets folded into the APR. The interest rate ignores it, so the APR is the more honest number to compare across loans.

Question 3

What is an origination fee?

Accepted Answer

A one-time fee a lender charges to set up the loan. It is usually a percent of the loan amount (often 1%–10%) or a flat dollar amount. It can be deducted from the cash you receive or added to your loan balance.

Question 4

Why do I receive less cash than the loan amount?

Accepted Answer

If the lender deducts the origination fee from your loan proceeds, the cash deposited to your bank is the loan amount minus the fee. You still repay the full loan amount.

Question 5

Does a lower monthly payment always mean a better loan?

Accepted Answer

No. A longer term lowers the monthly payment but usually raises the total interest you pay. A low payment can still be the more expensive loan overall.

Question 6

How do origination fees affect the real cost of borrowing?

Accepted Answer

Fees raise the effective cost of the loan. Either you receive less cash for the same repayment (fee deducted), or you repay a larger balance (fee added). Either way, APR captures it.

Question 7

Which number should I compare across lenders: rate or APR?

Accepted Answer

APR. As long as both loans are the same length and structure, APR is the fairest single number for comparing the total cost.

See the real cost of a personal loan — not just the rate.