Understanding APR vs interest rate is the fastest way to compare loans honestly. The interest rate is just the base cost of the money; the annual percentage rate (APR) folds in fees to reveal the real yearly price.
Quick answer: The interest rate is the cost of borrowing the principal; APR adds fees to show the true yearly cost. That is why a Washington payday loan with a flat 15% fee can carry an APR around 391% on a two-week term.
Why the gap matters
A payday loan may quote a small flat fee, say 15% on $100, but over a 14-day term that annualizes to roughly a 391% APR. A credit-union PAL capped near 28% interest sounds higher per dollar of stated interest but costs far less overall because the term is longer and fees are limited.
How to use APR when shopping
- Always compare loans by APR, not by the flat fee.
- Ask for the total dollars repaid, not just the rate.
- Remember Washington lenders must disclose the APR by law.
Frequently asked questions
It is equal or higher, because APR includes fees on top of interest.
A flat fee over a very short term annualizes to a large percentage, around 391%.
Compare APR and total repayment across offers for a true picture.
This article is educational and is not financial or legal advice. Loan laws change; always confirm the current rules and verify that any lender is licensed with the Washington Department of Financial Institutions (DFI) before you borrow.