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Difference between APR and Interest Rate?

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jasonkm1
Regular Contributor

Difference between APR and Interest Rate?

I qualified for a loan at Prosper for an interest rate of 11.39% and and APR of 14.21%.  What's the difference between the two? I know my local bank says I can get a loan for around 8.5%. When banks quote you loan figures are they using the interest rate or the APR? 

Message 1 of 4
3 REPLIES 3
lg8302ch
Senior Contributor

Re: Difference between APR and Interest Rate?

I am curious to that question to ?  The figures I received were always pretty much the same and it looked just rounded up to me. But in your case that is completely different..hmm

Message 2 of 4
Revelate
Moderator Emeritus

Re: Difference between APR and Interest Rate?

Since BOFA > me:

 

  • The interest rate refers to the cost of borrowing money and is expressed as a percentage.
  • The APR, also expressed as a percentage, reflects the effective cost of your loan on a yearly basis. It takes into account fees and costs such as interest, mortgage insurance, most closing costs, discount points, and origination fees. APR is an estimate and may change if there are any changes in loan amount, loan term or other criteria. Your monthly payment is not based on APR, it's based on the interest rate on your promissory note.

That was with regards to mortgages explicitly, but the Prosper loan will have similar origination fees.

 

In general the APR will be equal or greater than the nominal interest rate which you pay on your loan.




        
Message 3 of 4
jasonkm1
Regular Contributor

Re: Difference between APR and Interest Rate?

Ok thank you, makes sense now. I found out there is a "loan origination" fee from  prosper, unlike my local bank. Because I have to pay that "brokers" fee, I believe the interest of the loan would be the higher one. If you don't count that fee, it would be the lower one.

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