Borrowing rate vs APR
Two terms, one common mix-up – explained with an example.
The borrowing rate and the APR sound alike but do not mean the same thing. Knowing the difference helps you decide better and avoid being misled by a rate that looks low.
The borrowing rate
The borrowing rate is the plain interest rate on the amount borrowed. It matters, but on its own it does not tell you how expensive a loan really is over its full term.
The APR
The APR sums up the total annual cost and is therefore better for comparison. For an offer with no additional fees, the two values are close together.
What it means for you
Always compare offers using the APR. That way you compare like with like and do not overlook hidden costs.
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