An APR is a disclosure on the loan contract.  It’s what Federal Truth in Lending considers the “true” cost of credit.  It’s not used to service a loan, test simple interest calculations or accrue interest.

An interest rate is used to calculate interest on a  loan.  The Interest rate is how fees are added to the loan.

An APR in a closed-ended installment loan is really just a disclosure that goes inside the TILA box.  It’s what Federal Truth in Lending considers the true cost and rate of return for the lender.   The interest rate, on the other hand, is what an auditor would use to test if the loan is being serviced correctly.

So, if there is just interest being charged on a loan, then the interest rate and APR are the same?  Not so fast, Federal Truth in Lending regulation Z appendix J has some nuance that makes the APR deviate from simply backing into the interest rate.  The APR (a disclosure) can be higher or lower based on a few factors like “odd days” in the first payment and date roll. When the first payment is longer and shorter than the standard unit period, it makes the APR fluctuate. This has to do w/ how the Federal Truth in Lending Laws methodology is written.

When doing a single payment loan, like a payday loan; the APR and interest rate are the same mainly because there is no unit period. This is why some people (even auditors) think the APR is an interest rate. This is incorrect, for single payment loans, it can be used as the interest rate because they happen to be the same.