Borrowing · 4 min read
Understanding APR vs Interest Rate
When you compare loans, credit cards or mortgages you'll see two interest figures: the interest rate and the APR. They look similar, but they mean slightly different things — and confusing them can cost you.
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Interest rate: the price of the borrowing
The interest rate is what the lender charges on the money you borrow. It's the headline number used in the mortgage formula and the figure that drives most of your monthly payment.
APR: the all-in cost
APR (Annual Percentage Rate) bundles the interest rate together with most compulsory fees — like arrangement fees on a mortgage or set-up fees on a personal loan — and expresses the total as a yearly rate.
That's why the APR is usually a bit higher than the underlying interest rate. It's designed to make like-for-like comparison between lenders easier.
Which number should you compare?
For mortgages, look at both: the initial rate tells you what your monthly payment will be during the fixed period, while the APRC (the mortgage version of APR) shows the cost averaged over the full term, including the lender's standard variable rate afterwards.
For personal loans and credit cards, the representative APR is the most useful single figure — but remember at least 51% of accepted customers must get the advertised rate, so your actual offer can be higher.
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Open the Loan Repayment CalculatorFrequently asked
- Why is the APR higher than the interest rate?
- Because APR includes most mandatory fees, not just the interest charged on the borrowed amount.
- Is a low APR always the best deal?
- Usually yes for like-for-like products, but always check the term length, fees, and any early repayment charges too.
This guide is general information, not financial advice. Last updated May 2026.