There is some confusion out there regarding the difference between Rate and APR. Flatiron Finance would like to clear up the confusion.

In simple terms, the base interest rate or “Rate” is the cost of the interest on the loan, aka “interest rate.”

Annual Percentage Rate or “APR” on the other hand, is the total cost of borrowing, and includes the base interest rate in addition to other costs associated with the loan.

APR disclosure goes back to 1968, when Federal Government passed legislation to make it easier for consumers to understand the actual cost of borrowing, and to compare loans on an “apples to apples” basis.

For example, if you listen carefully to most home mortgage advertising, you will hear two numbers: the “Rate” of “Only 2.9%!” and a higher APR of perhaps 3.27%. In this case, the interest rate is 2.9%, but by the time the fees associated with getting the mortgage are added in, the effective rate—or the actual cost of borrowing—is 3.27%.

How does this information apply to and help you?

If you were comparing two home loans that each had a 2.9% interest rate, but one had 3.27% APR and the other 3.94% APR, it would be much easier to identify the more expensive fees built into the higher-cost 3.94% APR loan—and therein lies the difference between interest “rate” and APR.

With the vast majority of auto loans, the Rate and APR are the same, and show up on the contact as the APR. This is simply because the auto loan does not have the same kinds of fees as a home loan—things work slightly differently with an auto loan company than one that specializes in home loans.

Flatiron Finance wants to make sure that our customers understand the choices they are making when it comes to auto loans and finance. That’s why we are the best auto refinance company in Colorado.

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