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The Difference Between Interest Rate and APR (Video)

The Difference Between Interest Rate and APR (Video)

The Difference Between Interest Rate and APR

(Video Transcript)

When you’re applying for a new credit card or loan, you’ll see both the interest rate and annual percentage rate, or APR. That might leave you wondering, “What’s the difference?”

The interest rate is the cost of borrowing. The APR includes the interest rate plus other costs and fees. This could include fees for loan processing, underwriting, or document preparation. Let’s look at an example.

Say you go to two different banks, and they both offer a 4.00% interest rate. Bank A has a 4.20% APR. Bank B has a 4.75% APR. This means the second bank has higher costs and fees for the loan or credit card.

Banks are required to quote the APR on all lending products. So next time you’re comparing costs for a loan or credit card, be sure to compare the APR before choosing a final product.

Heather Bahe

Heather Bahe

Vice President, Consumer Lending Manager (515) 245-2860 Email Heather

Heather Bahe joined Bankers Trust in 2004 as a relationship banker at the East branch. She moved to the Branch Administration Department four years later and received a number of promotions before being named to her current position of vice president, consumer lending manager in 2014. In this role, Heather supports the consumer lenders in Des Moines, Cedar Rapids and Phoenix to ensure compliance and provide direction on underwriting, process development, operational efficiency, system administration and data analytics. She also monitors the oversight of quality control functions as they relate to regulatory requirements, internal audit and federal examinations.

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