Interest Rate vs. APR: What You Need to Know

By Upstart Content Team | Updated January 16, 2026
reading time 4 min read
Young man with curly hair checking phone to learn about interest rate and APR

Key takeaways: 

  • Interest rates express your base costs to borrow money.
  • Annual percentage rates (APRs) provide a comprehensive breakdown of financing costs, including interest and additional fees.
  • Comparing APRs while shopping around for loan offers can help you find the best rate on a personal loan.

Whether you’re new to lending or a seasoned borrower, the differences between APR and interest rate can be confusing. However, understanding these two terms can help you navigate the borrowing process more effectively. It may also help you save money by getting the best deal on a personal loan.

Read on for everything you need to know about the differences between interest rates and APRs, how they’re calculated, and which is the best indicator of the true cost of borrowing.

What is an interest rate?

An interest rate is the amount you pay to borrow money for a set time. Typically, your interest rate is expressed as a percentage of your loan or credit card balance. Interest rates may be variable or fixed. If you have a variable interest rate, it may change based on an external index. Fixed rates remain the same throughout the life of your loan.

Pro tip: Interest charges are added on top of your monthly principal payments. For instance, if you take out a $4,000 loan with a 2-year term and a 20% interest rate, your principal payment would only be $167 per month before interest. Your monthly payments increase to $204 after adding interest.

How are interest rates calculated?

Interest rates are calculated based on a number of factors, including: 

  • Average market rates
  • Loan amount
  • Loan term length

Your lender or credit card issuer will also consider details like your credit score and payment history. If you have a good credit score and a solid history of repaying your debts on time, you’re more likely to qualify for a lower rate. 

But if your credit score could use some work, your interest rate may be higher to reduce the risk of loaning you money.

What is APR?

APR stands for annual percentage rate. It represents the total cost of borrowing money, including interest charges and additional fees. These vary depending on your loan provider and the loan type, but may include:

  • Origination fees
  • Processing fees
  • Closing costs
  • Administrative charges
  • Account maintenance fees 

How is APR determined?

APRs consider factors like your loan amount, term length, and credit history. However, your APR also comprises factors outside of your control. For example, APRs may include fees and other costs built into your personal loan.

Pro tip: Thanks to the Truth in Lending Act (TILA), your lender must provide your APR and its associated fees. You can typically find this information in your loan estimate or terms. If you can’t find your APR, reach out to your loan provider directly.

APR vs. Interest Rate: What are the differences?

Both APR and interest rate give you an idea of how much it’ll cost you to borrow money. However, the two percentages are calculated differently and represent unique costs. For a closer look at how interest rates and APRs differ, consider the table below.

Interest Rate

APR
  • Provides a narrow view of your loan cost
  • Represents the “rent” you pay to borrow money
  • Doesn’t include additional fees 
  • May be fixed or variable
  • Typically lower than APRs
  • Provides a comprehensive view of your loan cost
  • Represents the total cost of borrowing money
  • Includes all fees associated with your loan
  • May be fixed or variable
  • Typically higher than interest rates

Why is APR higher than the interest rate?

APRs are often higher than interest rates because they include the interest rate on a personal loan plus additional charges. 

Can APR be equal to the interest rate?

APRs can be equal to the interest rate on a loan. However, this is only the case if there are no up-front fees associated with your loan, like origination fees. In addition, your APR is almost never lower than the stated interest rate.

Is it better to have a lower APR or interest rate?

Because your APR represents the total cost to borrow money, it’s best to look for a loan with a lower APR. Often, potential borrowers pay close attention to interest rates but fail to compare APRs, which can result in expensive debt that’s hard to repay.

APR vs. interest rate example

For a real-time look at the differences in APRs and interest rates, consider the following. 

You plan to take out a $10,000 loan with a 5-year repayment period and a 20% interest rate. Based on this information alone, you calculate your monthly payments to be $265. You also determine you’ll spend about $5,900 in interest over the life of your loan.

However, the total APR on your loan is 28%, after counting all interest charges and additional fees. When you factor APR into your installments, you find your monthly payments will actually be $311, and your total cost to borrow will be about $8,700—almost $300 more than you originally anticipated.

Ready to start comparing loans?

Knowing the differences between APRs and interest rates is one of the most important factors when it comes to comparing loans. After reading this guide, you should feel empowered to evaluate loan offers and determine which loan is the right choice for you based on interest rates and total APRs.

And if you’re not sure you’ve found the right loan, consider applying for a personal loan through Upstart. Our model looks beyond your credit score and uses work experience and education²  to help you find a rate on a personal loan. Check your rate online today—at no cost to your credit score.¹

² Neither Upstart nor its bank partners have a minimum educational attainment requirement in order to be eligible for a loan.

*This content is general in nature and provided for informational purposes only. This content is not specific to Upstart, except where explicitly stated. This content may contain references to products and services offered through Upstart’s credit marketplace. Upstart is not a financial advisor and does not offer financial planning services.

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About the Author

Upstart Content Team

The Upstart Content Team develops educational content grounded in research and real-world financial experiences. By breaking down complex topics into clear, actionable insights, the team helps readers navigate important decisions—so they can feel confident in the money moments that matter.

More resources you may be interested in

Personal Loan with No Credit Check: What to Know Before Applying
What Happens if I Default On a Loan?
What Is a Personal Loan Origination Fee and Is It Worth It?

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1. When you check your rate, we check your credit report. This initial (soft) inquiry will not affect your credit score. If you accept your rate and proceed with your application, we do another (hard) credit inquiry that will impact your credit score. If you take out a loan, repayment information may be reported to the credit bureaus.

2. Neither Upstart nor its lending partners have a minimum educational attainment requirement in order to be eligible for a loan.

3. While most loans through Upstart are unsecured, certain lenders may place a lien on other accounts you hold with the same institution. There may be an option to secure your personal loan through Upstart with your vehicle, which will require a lien to be placed on the vehicle. It is important to review your promissory note for these details before accepting your loan.

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5. The full range of available rates varies by state. The lowest rates are only available to the most qualified applicants. A representative example of payment terms for an unsecured Personal Loan is as follows: a borrower receives a loan of $10,000 for a term of 60 months, with an interest rate of 18.60% and a 7.82% origination fee of $782, for an APR of 22.69%. In this example, the borrower will receive $9218 and will make 60 monthly payments of $259. APR is calculated based on 5-year rates offered in December 2025. There is no downpayment and no prepayment penalty. Your APR will be determined based on your credit, income, and certain other information provided in your loan application. Not all applicants will be approved.