What is the difference between APR & INTEREST

Question

I get confused on the difference. Do you use APR for the first month only or what is the exact difference

Ned Carey · Answer

@Pedro Echevarria I am not sure what you mean by       "Do you use APR for the first month only"APR is a government defined number that supposedly lets you compare rates. It takes into account things like the cost of the financing and any Points you pay to get the loan.

Interest rate is the amount of interest you pay on the amount borrowed. It is the number used to calculate your payments.

Chris Mason · Answer

In theory: Take the fees/costs etc paid at closing of buying a home that only exist b/c you are buying using a mortgage. Disregard the ones that would exist anyways, such as property taxes. Once you are done adding them up, divide by 360. Add that number to your P&I payment. Use a financial calculator to solve for interest rate. That's APR.

In practice: Computers generate a compliant APR number and no one looks at it, especially not people in the mortgage industry, since it's fairly easy to manipulate. Look at the interest rate and look at whatever lender fees/points are getting you that interest rate. Instead of one number (APR), look at those two numbers to get an accurate picture of what you are getting, and what you are paying (or not) for it.

Cars. Think of cars. No one tries to boil a car down to a single number. They look the type of car they are getting, and what they are paying for the car. The nicer car typically costs more, and the lower interest rate will typically come with more fees. Trying to compare a $80k muscle car to a Toyota pickup by mushing things together to get 1 number for the Tesla and 1 number for the Tacoma wouldn't be super useful.