Interest rate: the percent increase per compounding period . Almost totally useless unless the compounding period is also known.
APR: a metric which extrapolates an interest rate and compounding period out to one year, less any unavoidable fees. Because this metric can be computed for any savings instrument or any loan, it can be used to directly compare rates between different savings or lending institutions.
APR is still computable even for something which won’t last for 1 year (eg a 6-month Certificate of Deposit), for things with a compounding period longer than 1 year, and can deal with promotional offers, such as a savings account that pays 5% for the first 3 months and then returns to a normal rate of 1% ongoing.
Whereas before APR came into existence, it would have been possible to trick people with a seemingly “high” interest rate but it would have a longer compounding period, or they would charge an obligatory “exit fee” that takes a haircut off the interest at the end.
While the law cannot change the mathematical fact that an interest rate must also have a compounding period to be usable, USA law enforces that whenever an APR is given alongside an interest rate, it must have been computed accurately, with large penalties if not.
Interest rate is the amount a lender adds to your loan.
APR is the interest rate + any fees associated with the loan.. I guess not…APR, is referring to only interest. It has nothing to do with other fees.
Then I have read a bad article.
No worries, its certainly happened to me too on other topics. Thank you for your edit to your post to make sure others don’t come away with the wrong information.