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The difference between rate of interest and APR
- The cost of borrowing money stated as a percentage rate is the interest rate, which you will pay annually.
- An alternative to using interest rates to assess borrowing costs is an annual percentage rate, or APR.
What is rate of interest?
The amount of interest that is charged on a loan, deposit, or borrowing each period expressed as a percentage is known as the interest rate. The total amount of interest on a loaned or borrowed sum is determined by the principal amount, the interest rate, the frequency of compounding, and the period of time during which it is lent, deposited, or borrowed.
What is APR?
The term annual percentage rate of charge, which can sometimes be referred to as a nominal APR and other times as an effective APR, refers to the interest rate for the entire year as opposed to merely a monthly fee or rate as applied on a loan, home loan, credit card, etc. In terms of an annual rate, it is a finance charge.
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