Interest Rate vs. APR – What's the Difference?
When comparing loans, you'll encounter two key rates:
- Interest Rate – The base rate charged on the loan principal
- APR (Annual Percentage Rate) – Includes ALL costs: interest rate, origination fees, insurance, and other charges
Always compare APR, not just the interest rate. Two loans with the same interest rate can have very different APRs if one has higher fees.
How Is APR Calculated?
APR is expressed as an annual percentage and includes:
- The loan interest rate
- Origination fees
- Broker fees (if applicable)
- Mortgage insurance (for mortgages)
Loan Calculation Example
$10,000 loan for 60 months at 9.99% APR:
- Monthly payment: $212.47
- Total payable: $12,748.20
- Total interest: $2,748.20
Tips for Comparing Loan Offers
- Always compare APR across lenders – even 1-2% difference adds up significantly
- Choose a shorter term if you can afford higher monthly payments – you'll pay less total interest
- Ask about all fees before signing – origination fees, prepayment penalties, insurance
- Get pre-approval from multiple lenders to compare real offers
Canadian Regulations on APR Disclosure
In Canada, lenders are required by law to disclose the APR before you sign a loan agreement under the Cost of Borrowing (Banks) Regulations. Always ask for this information in writing.