Short answer
An interest rate expresses the yearly cost of borrowing without loan fees; APR expresses a broader cost that includes interest and additional charges. For mortgages, those charges include points and mortgage broker fees, so APR is usually higher than the interest rate. The CFPB makes the same basic interest-versus-fees distinction for auto loans. 1 2
On this page
At a glance
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| Attribute | Interest rate | Annual percentage rate |
|---|---|---|
| What it measures | Yearly borrowing cost excluding fees | Broader yearly borrowing cost including fees |
| Mortgage points and broker fees | Not reflected | Reflected |
| Mortgage Loan Estimate location | Page 1, Loan Terms | Page 3, Comparisons |
| Auto-loan fee treatment | Excludes loan fees | Includes loan fees |
These entries describe the mortgage and auto-loan explanations supplied by the CFPB. 1 2
What each thing is
Both figures are percentages describing the price of borrowing, rather than dollar totals. The interest rate isolates the interest component. APR incorporates additional borrowing charges into a broader percentage measure. In the auto-loan explanation, the CFPB treats both as important measures of a loan’s price, not interchangeable labels. 2
Key differences
The central difference is which costs appear in the measure. A mortgage interest rate leaves out fees and other charges; mortgage APR reflects interest, points, mortgage broker fees, and other charges paid to obtain the loan. That makes APR broader, but the excerpt does not provide a complete fee-by-fee calculation method. 1
How to tell them apart
Use the disclosure label rather than guessing from the number’s size. On a mortgage Loan Estimate, look for the interest rate under Loan Terms on page 1 and APR under Comparisons on page 3. This location rule applies to that mortgage form; the supplied auto-loan text does not establish equivalent page locations. 1 2
Where they overlap
APR includes the interest rate rather than replacing interest with an unrelated charge. Both therefore describe aspects of the same borrowing transaction. A meaningful label-to-label comparison keeps APR alongside APR, rather than putting one loan’s fee-inclusive APR against another loan’s fee-exclusive interest rate. 1 2
Edge cases
An adjustable-rate mortgage’s APR is not its maximum possible interest rate. The CFPB also cautions about comparing fixed-rate and adjustable-rate mortgage APRs, or different adjustable-rate mortgages. Thus, even correctly labeled APR figures do not erase differences in loan terms or reveal a future rate ceiling. 1
Why the distinction exists
Separating the figures makes two questions visible: what is the interest component, and what broader borrowing cost includes additional charges? A mortgage can involve points, fees, and other costs beyond interest. Reporting only its interest rate would leave those charges outside the stated percentage measure. 1
Common misconceptions
APR is not simply another name for the interest rate. Nor does the mortgage explanation say APR must always be higher: it says that is usually the case. Finally, a percentage labeled APR should not be read as an adjustable-rate mortgage’s highest possible rate. 1
Examples
Hypothetical mortgage: a borrower pays points and a mortgage broker fee. Those charges are outside the interest rate but reflected in APR. 1
Hypothetical auto-loan comparison: one document highlights APR and another highlights the interest rate. The two displayed numbers measure different cost bundles; comparing the APR on each document preserves the fee-inclusive basis. 2