What is the difference between APR and interest rate at Earnest?

By Corey Buhay | Published on March 27, 2026

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TL;DR

• APR includes not just a loan’s interest rate but its total annual fees. That makes it a more accurate metric for comparing loan costs. But at Earnest, they’re the exact same thing
• Both the federal government and many private student loan lenders charge loan fees. Earnest, however, is fee-free
• Your interest rate—and therefore your APR—will be affected by your credit score, national market trends, and the type of interest rate you have
• You can improve your chances of scoring a low rate (and low APR) on a new loan by paying down existing debt, improving your income, and making any ongoing payments on time

Many financial experts will counsel you to check a lender’s APR (Annual Percentage Rate)— and not their interest rates—when you’re shopping for new loans. That’s because APR includes not just your interest rate but any additional cost and hidden fees. That makes it a better indicator of how much you’ll actually pay over the life of a loan.

Some lenders advertise low interest rates, but charge much higher APRs. At Earnest¹, we do things a little differently. With us, your APR and your interest rate will always be exactly the same. It’s part of our effort to streamline things, get back to basics, and make borrowing as straightforward as possible.

But what fees actually go into an annual percentage rate? And how does APR affect your borrowing costs over the long run? Here’s a little background on APR vs interest rate, and what you need to know to make smarter borrowing choices.

What are interest rates?

To kick things off, here’s a little refresher on interest rates. An interest rate is the cost of borrowing money. When you take out a loan, the lender charges you interest as a fee for allowing you to use their money. So, the interest rate is essentially the price you pay for borrowing. All types of loans come with interest.

Interest is charged as a percentage of your loan. Each time you make a monthly payment, you give the lender some money to put toward your principal balance (the original amount you borrowed) and some to put toward the interest you owe them.

• If you have a high interest rate, then a higher proportion of each monthly payment will go toward your interest, rather than actually paying down the balance you owe. That makes it harder to pay off the loan in full.

• If you have a low interest rate, that means more of your money is going toward the principal balance each month. That makes it easier to pay off your loan faster.

What is an annual percentage rate?

Your annual percentage rate, or APR, includes both your loan’s interest rate and any fees. If you qualify for any credits or discounts, these savings will also be folded into your APR.

Fees for federal student loans

Contrary to popular belief, federal student loans are not fee-free. The federal government charges a standardized fee for each loan type. These fees are set by Congress each year and calculated as a percentage of your original loan amount.

Fees for private loans

Private student loan lenders may charge you an origination fee to create your loan and transaction fees to process each of your payments. Some private lenders also charge additional fees or levy rate increases if you miss payments.

Add all these up, and you could end up with an APR that’s much higher than the interest rate you were advertised. That’s why all private lenders are required to disclose the loan’s APR as well as its interest rates.

Why should you judge a loan based on APR vs interest rate?

A loan’s interest rate only reflects the cost of borrowing the principal amount, whereas APR represents the loan’s total annual cost. That makes it a more accurate measure for comparing loans. With APR, you can make an apples-to-apples comparison without having to read the fine print.

Here’s an example to illustrate how this can work. Say you receive an offer for a loan with a 9% interest rate and an origination fee of 3%. You get a separate offer with a 10% interest rate but with no fees. In this case, the lower-interest-rate loan actually has the higher APR: it’s 12% when you factor in that 3% fee. Meanwhile, the no-fees loan has a total APR of 10%*. So, instead of 9% vs. 10%, your actual cost is going to be 12% vs. 10%. When you look at APR, it’s easy to see that the higher-interest loan is actually the more affordable choice than the lower-interest loan.

_ *Rate and payment example listed above is for illustrative purposes only and may not be representative of rates or terms offered by Earnest._

What does it mean if APR and interest are the same?

If your loan’s APR is significantly higher than its interest rate, that means your lender is charging you a lot of fees. But what if the difference between APR and interest is zero? That means the lender charges no fees at all. That’s Earnest’s policy: we never charge origination fees, transaction fees, or any other additional costs.

What determines my interest rate?

The exact interest rate you’ll be offered when you go to take out a loan will depend on a few different factors. Here are the big ones.

• Your credit score: Your lender will almost always check your credit score before they issue a loan estimate. Your credit score is considered a broad metric of your financial stability. Generally, the higher your score, the more comfortable the lender will be in offering you a lower rate. The lower your score, the more limited your loan options

• Market trends: Most lenders set their rates based on a national benchmark rate, which is set by the U.S. Federal Reserve. When national interest rates are high, most lenders charge higher rates to reflect that.

• Type of rate: Student loans can have either fixed rates or variable rates. Variable rates go up and down as market conditions change. So, if national interest rates go up, your variable rate will, too. This gives the lender a chance to charge you a higher rate if borrowing conditions get more expensive. This is comforting to a lender, so they’re typically willing to offer borrowers lower upfront rates. In contrast, fixed interest rates remain the same over the life of the loan. They provide borrowers with more security, but leave lenders more vulnerable. For that reason, fixed rates tend to start out higher than variable rates do.

• Loan term: Loans with longer terms tend to have higher interest rates. You’ll also pay more interest in total since you’ll be making payments for longer. A short loan term, on the other hand, means a lender will get their money back sooner. That means they’re more likely to offer you lower rates.

• Other factors: Other variables may go into your lender’s eligibility calculation, depending on the type of loan. If you’re taking out a mortgage loan, the size of your down payment will affect your interest rate. Ditto for auto loans. And if you’re taking out a student loan, your lender may consider your employment history, GPA, or other debts before they make their offer.

Why do interest rates change over time?

When national interest rates spike or plummet, the Federal Reserve often has something to do with it. The Reserve is the federal government’s financial arm. It’s in charge of monitoring and regulating the U.S. economy. It’s also in charge of setting the federal funds rate, the target rate the government recommends all lenders and borrowers strive for.

Sometimes, the Reserve raises the federal funds rate by a few percentage points to try to stem inflation. More recently, however, the Reserve has done the opposite: dropping rates to encourage borrowing and stimulate the economy.

How often do rates change for private student loans?

Private student loan servicers aren’t beholden to rigidly set annual rates like the U.S. Department of Education is. Instead, private lenders more closely follow national markets, often updating their rates on a monthly basis to reflect current interest rate trends. If you have variable-rate loans, your bill will likely vary from month to month, as well.

How often do rates change for federal student loans?

Federal student loans have fixed interest rates, which means they won’t vary over the life of the loan. However, the interest rate offered to new borrowers changes on an annual basis. Federal student loan interest rates are set by Congress. These rates are based on the 10-Year Treasury Note auction, which happens each spring. Rates are announced for the upcoming academic year shortly after the auction, then implemented for new loans starting July 1.

Can I switch from a variable-rate loan to a fixed-rate loan?

Yes—you can switch your interest rate type via student loan refinancing2. Refinancing allows you to combine existing loans into a single, new loan with a new lender. During this process, you get a new interest rate, loan term, and repayment plan. So, if you’re worried about your variable interest rates increasing, you can refinance to lock in a fixed interest rate instead.

Keep in mind that your new fixed rate may be higher than your old rates at first. The benefit is that it won’t go up—even if the Fed implements a rate hike. That could save3 you money over the long term.

How can I improve my odds of getting a lower interest rate?

The best way to improve your loan application is to boost your credit score. You can’t control a lender’s policies or national trends. But you can control your personal spending behavior. Here are a few ways to improve your score and lower your rate (and therefore your APR).

• Pay down credit card debt: If you have other outstanding debts, try to pay them down. The lower your debt-to-income ratio, the better your score will be.

• Apply for a score-boosting service: Services like Experian Boost give you credit for on-time payments that might not usually be considered as part of your credit score. These include payments for subscription services and other recurring bills.

• Diversify your credit mix: If you only have one type of credit account—i.e., you only have student loans or only use credit cards—try diversifying your credit by borrowing another type. Responsibly using a credit-builder loan or an entry-level credit card can show lenders that you’re capable of managing multiple types of debt at once.

• Apply for a lower loan amount: You may qualify for lower interest rates if you apply for a lower loan amount. See if you can get away with borrowing less.

• Shop around for different lenders: You can often qualify for different rates from different lenders. Shop around, get multiple estimates, and remember: compare lenders based on their APR, not on their interest rates.

• Plan to refinance later: If you only qualify for high interest rates (and therefore high APRs) don’t panic. You can always refinance your loan later. If your personal finances improve—or if the Fed drops rates—you may qualify for a better deal in the future.

When interest rates and APRs become the same

Smart loan shopping starts with understanding APR vs interest rate. They’re actually pretty different: Your loan’s interest rate is just the cost of borrowing that money, while your APR is the total cost of the loan—interest rate, fees, and discounts included.

With most lenders, a loan’s APR will be higher than its interest rate. But at Earnest, we don’t believe in charging extra fees. So, when you take out an Earnest loan, your APR and interest rate will always be the same. That means you pay back nothing but the principal and interest—no sneaky charges or hidden costs.