What is APR, and why is it not the interest rate?
It exists so you can compare two loans with one number. Which is why so much effort goes into what it is allowed to leave out.
APR folds interest, fees and time into a single annualised rate so loans can be compared.
Rate versus APR
The interest rate is what you pay for the money.
The APR is the rate plus mandatory costs of getting the loan, annualised. On a mortgage that means origination fees and points. That is why a 6.5 percent rate can carry a 6.8 percent APR, and why a lower advertised rate can be the more expensive loan.
APR exists because comparing a low rate with high fees against a high rate with no fees is a calculation most people will not do at a kitchen table. Regulation forced one number. It works reasonably well.
Where it stops working
Credit cards are the big exception. Card APR is quoted annually and charged on a daily balance, and there are usually several APRs on one card: purchases, cash advances, balance transfers, and a penalty rate that appears if you miss payments. Cash advances typically also start accruing immediately, with no grace period.
If you pay in full every month, the purchase APR is irrelevant to you. It only becomes real the first month you carry a balance, which is precisely why the card economy is designed around that moment.
Short-term borrowing is where APR turns absurd in both directions. A two-week fee expressed as an annual rate produces headline numbers in the hundreds of percent. The number is arithmetically correct and it is genuinely misleading about a two-week product, which is a rare case where the comparison tool obscures more than it reveals.
Mortgage APR assumes you keep the loan to term. Most people do not. If you refinance or move in six years, the fees were spread over a much shorter period than the APR assumed, and your real cost was higher.
A ticket price that includes the booking fee. Better than the price that hides it. Still not the cost of the evening, because it says nothing about the taxi home.
Where you meet it
Every loan advert with a large rate and a smaller APR beside it, every card statement, and every time two offers looked identical until you read the second number.