Two different numbers
When you're offered a car loan, you'll usually see two percentages: an interest rate and an APR (annual percentage rate). They're related but not the same thing, and mixing them up can make one offer look better than it really is.
Interest rate is the cost of borrowing the principal itself — the percentage applied to your loan balance to calculate the interest portion of each payment.
APR includes the interest rate plus certain fees the lender charges to originate the loan (things like documentation or origination fees), spread out over the loan term and expressed as a yearly percentage. Because it folds in more of the loan's true cost, APR is generally the more complete number to compare between offers.
Why they can differ
If a loan has no origination fees at all, the interest rate and APR may be identical. If it does carry fees, the APR will be higher than the interest rate — sometimes only slightly, sometimes more noticeably. A lender advertising a low interest rate isn't necessarily offering the cheapest loan once fees are accounted for.
What this means when comparing offers
- Compare APR to APR, not interest rate to interest rate, when you have multiple offers.
- Ask each lender to itemize any fees folded into the APR, so you understand what you're actually paying for.
- A slightly higher APR on a shorter term can still cost less in total interest than a lower APR on a much longer term — the Loan Calculator can show you the total interest for each scenario side by side.
Your actual rate depends on your credit, the lender, the vehicle, and the term you choose — nothing here is a substitute for the real offer in front of you.
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