Interest Rate

Interest Rate is the amount charged the borrower for use of money over the term of a loan.  Interest rate is usually stated in terms of an annual percentage.  It is the interest rate, term, and principal amount that determine the monthly payment on a loan.  For example, a one year loan of $100 at 10% would require interest payments of $10.

Interest rate is often confused with annual percentage rate, or APR.  The APR can be used to compare the total cost of a loan.  It takes into consideration fees and mortgage points as well as the interest rate on the loan.  This relationship can be stated as follows:

APR = Interest Rate + Fees + Points