The interest rate on your loan offer is only part of the story. Annual Percentage Rate (APR) and fees determine what you actually pay—and comparing offers on rate alone can mislead you.
Interest rate vs. APR
The interest rate is the cost of borrowing the principal. APR includes the interest rate plus certain fees (origination, points, broker fees) expressed as a yearly percentage. For mortgages, APR helps compare loans with different closing costs. For personal loans, a 10% rate with a 5% origination fee may have an APR near 14%.
Common fees
- Origination fee: Charged upfront, often deducted from proceeds (personal and some business loans)
- Application fee: Paid when applying—avoid if possible
- Prepayment penalty: Charged for paying off early—ask before signing
- Late payment fee: Applied if you miss due dates
- Appraisal and title: Standard on mortgages and home equity products
Truth in Lending
Federal law requires lenders to disclose APR and payment terms before you commit. Read your Loan Estimate (mortgages) or loan agreement carefully. Our consultants translate these documents into plain English so you know your total cost of borrowing.
Ask an Expert