APR vs Interest Rate: Understand the Difference

You’ve probably encountered both interest rates and APRs when researching different types of small business financing. But what do the numbers mean and what can they tell you about the amount you’ll be paying? Here’s what you need to know.


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What is Interest Rate?

An interest rate is a percentage that reflects the cost of borrowing the loan amount. Interest rates can be variable or fixed, depending on if they change throughout the term of the loan.

What is APR?

The Annual Percentage Rate (APR) is the total rate you’ll be paying on a yearly basis for your loan. This includes the interest rate, fees, closing costs, and any other additional charges associated with your desired loan.

The APR is also expressed as a percentage, but will often be higher than the base interest rate since it takes even more into account.

When do they matter?

Both interest rates and APRs are important when you’re evaluating different financing options. As long as all other factors like the term and amount of the loan remain the same, knowing how much you’ll be paying regularly can help you make a decision.

Each number will tell you about slightly different aspects of the repayment process.

Which one should you use?

The main difference between the two rates is that while the interest rate is associated with the expected monthly payment, the APR reveals the total cost of the loan, including one-time fees. Depending on what you’re looking to zero in on, you can use either percentage to get a fair comparison between different offers.

If you’re interested in finding out the amount you’ll be paying every month, use the interest rate as your point of comparison. But if you’re concerned about hidden fees and the true overall cost of the loan, APR is the way to go.




It’s a good idea to have both percentages in mind, because they each reveal something slightly different. In conjunction, they’ll help you understand where your payments will be originating from: the monthly (or weekly, or daily) interest, or the one-time fees associated with closing, packaging, and servicing.

SmartBiz Interest Rates and APRs

At SmartBiz Loans, we believe in 100% transparency. We’ve broken down all rates and fees for an SBA loan from our bank partners. Check out these handy Working Capital, Debt Refinance, and Commercial Real Estate loan calculators so you can determine the interest rate and APR associated with the loan amount you need.

Because of the long terms low rates and no pre-payment penalties, offered by the Small Business Administration through their 7(a) loan program, it’s no wonder this funding is known as the gold standard in small business lending. SmartBiz is here to help you get to a “yes” on your SBA loan application.

Before you apply, get started with SmartBiz Advisor to get a closer look at your lending profile, as well as personalized recommendations on how to improve your situation if necessary. This free, educational tool will act as your Intelligent CFO and help you understand how our bank partners evaluate your business.


* The information provided through SmartBiz Advisor, including the Loan Ready Score, is for educational purposes and is not the same as scores used by lenders for credit decisions. SmartBiz Advisor is not a financial or legal advisor as defined under federal or state law. Use of this information is not a replacement for personal, professional advice or assistance regarding your finances or credit history.