Should I always pick the lowest APR?

Usually, but not always. If you'll move within a few years, a lower-fee/higher-rate offer can be cheaper than a low-rate offer with big upfront points, even if the APR is higher.

Where do I find APR on a Loan Estimate?

Page 3 of the federally-standardized Loan Estimate document, in the 'Comparisons' box. It also lists the total cost of credit over five years.

APR vs. interest rate

The interest rate computes your monthly payment. APR computes your true cost of borrowing — including fees. They're almost always different, sometimes by a lot.

What each number means

Interest rate — what the lender charges to use the principal, expressed annually. This is the number that goes into the payment formula.
APR (Annual Percentage Rate) — the interest rate plus most upfront lender fees, amortized across the loan term and re-expressed as an annual rate. APR is required by federal law (TILA) on every loan offer so shoppers can compare like-for-like.

Why APR is usually higher

APR includes origination fees, discount points, mortgage insurance premiums, and certain other costs. The interest rate doesn't. So a quoted 6.5% interest rate with $5,000 in fees might come out to roughly 6.7% APR. That gap is the cost of the fees converted to an annual rate.

Use APR for comparison, the rate for the payment

Compare APRs across loan offers — it's the only number that lets you compare a low-rate-with-fees offer against a higher-rate-no-fees offer fairly.
Use the interest rate to compute your actual monthly payment. APR is annualized accounting; it isn't what you actually pay each month.
APR assumes you keep the loan to maturity. If you'll sell or refinance in a few years, points and fees may not pay off — re-run the math for your real holding period.

Beware the APR caveats

Different lenders include different fees in APR — even though the law specifies most of them, edge cases exist.
On adjustable-rate loans, APR uses an assumed future rate that may not happen.
APR doesn't include escrowed taxes/insurance or third-party fees you'd pay regardless of lender.

Frequently asked

Should I always pick the lowest APR?: Usually, but not always. If you'll move within a few years, a lower-fee/higher-rate offer can be cheaper than a low-rate offer with big upfront points, even if the APR is higher.
Where do I find APR on a Loan Estimate?: Page 3 of the federally-standardized Loan Estimate document, in the 'Comparisons' box. It also lists the total cost of credit over five years.

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