Student Loan Interest Rate vs. APR: What’s the Difference?

A student loan interest rate and a student loan annual percentage rate (APR) are similar in that they both represent your cost of borrowing money. There are subtle differences between the two, however, and understanding those differences can impact your student loan decision.

Interest Rate vs. APR: Key Distinction

  • An interest rate, which is reflected as a percentage of your principal (the amount you borrow) does not include other fees and charges.
  • An APR includes the interest plus any fees and charges.

That said, different lenders might define an APR – and its associated charges – in different ways. Likewise, many loans have all the above – interest rates, fees, and charges – but some lenders might only list one rate, while others might list both.

This article will dig a little deeper into how student loan interest rates and APRs differ, so you can better assess and compare the true costs of your student loan options.

What Are Student Loan Interest Rates?

An interest rate represents the amount a lender charges you to borrow money. It is calculated as a percentage and multiplied by your principal amount.

Student loan interest rates can be fixed or variable. Fixed rates remain the same for the life of a loan, while variable rates fluctuate with market trends.

With many student loans, interest can start to accrue as soon as your loan is disbursed and will continue to accrue until you repay the loan in full.

What Are Student Loan APRs?

An APR (or annual percentage rate) is meant to serve as an overview of the interest and fees associated with a loan. An APR is therefore often higher than an interest rate.

Additional charges included in an APR might be:

  • Application fees
  • Origination fees

Application fees are usually flat fees charged once for completing a loan application. These fees are often non-refundable.

Origination fees are charges associated with processing your loan. They can be calculated as a percentage of your principal or folded into that principal and financed along with it. For this reason, it is important to note that even when a loan’s interest rate and APR are identical, it does not mean your loan is free from additional charges.

Not all lenders charge fees. College Ave Student Loans, for example, does not have any application or origination fees. When you apply for a loan at College Ave, you’ll know your interest rate and repayment terms upfront. This provides a clear picture of the cost of a College Ave loan, which then makes it easier to compare it to other options.

What is Better to Look At – APR vs. Interest Rate?

To get a true assessment of costs, look at both interest rates and APRs. This might require some extra work, but it can save you money in the long run.

It is also important to understand that APRs can differ for federal student loans, in which case the APR might not include a loan’s origination fee.

To ensure you’re shopping for student loans with the right information:

  • Begin your research early.
  • Don’t assume the lender with the lowest interest rate is the least expensive option. Ask lots of questions.

A student loan calculator can help you figure out how paying interest while you’re still in school can contribute to saving on your overall loan cost.

When you loan shop from an informed place, you can find and commit to the best student loan for your financial situation.


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