APR vs. interest rate — what is the difference?

Two banks advertise a loan at “7% interest” — but their monthly payments turn out different. That’s because the interest rate isn’t the only cost of borrowing.

What the nominal interest rate is

This is the raw price of the borrowed money — the rate interest accrues on the principal at. It’s exactly what the loan calculator uses for the monthly payment.

What APR is

The Annual Percentage Rate (APR, called ГПР in Bulgaria) includes the interest plus every other mandatory cost of the loan:

• an origination/processing fee
• mandatory insurance (if it’s a condition of approval)
• an account-management fee tied to the loan
• any other one-off or recurring fees the bank requires

That’s why APR is almost always higher than the advertised rate — sometimes by 1–3 percentage points, and considerably more on small loans with high fixed fees.

Why APR is the number to compare

Two offers with the same nominal rate can have very different APRs because of different fees. Bulgarian law requires banks to calculate it with a standardized formula and disclose it in the Standard European Consumer Credit Information form before you sign — which is exactly why it’s the reliable way to compare two offers apples-to-apples.

What our calculator doesn’t show

The loan calculator on this site works with the nominal rate, because extra fees are specific to each bank and product. For an exact APR and payment, always check the specific written offer your bank gives you.

Related

Considering a loan for a property purchase? See the notary fee costs, which are due separately.