What is the difference between the interest rate and the A.P.R.?

Why are the APR and Interest Rate different?
Here's a quick lesson. The government requires us, and all banks, to report both the Interest Rate and the Annual Percentage Rate on a loan. That's a good thing. We think consumers should know exactly what they are being charged but sometimes it gets confusing. So what's the difference between interest rate and APR?

The Interest Rate is the rate used to calculate the interest that you will pay on the loan. The Interest Rate on the Orange Mortgage is adjustable after 5 or 7 years (depending on the term you choose) so the rate will most likely change over time. It may go up or down depending on market conditions.

The Annual Percentage Rate, or APR, starts with the Interest Rate and then adds in other costs such as points and other fees that, along with interest, are called "finance charges". Generally, APRs are higher than Interest Rates because all finance charges, not just interest, are used to calculate the APR. This lets you see the true cost of borrowing so that banks can't hide behind a low rate and pile on fees and points that you may not realize add to the cost of the loan. When deciding between loan choices, be sure to pay attention to the APR and the "rate."