APR vs Interest Rates

When financing a new home, you’ll need to learn the difference between the APR and the interest rate.

When comparing long-term loans, the interest rate and the annual percentage rate (APR) are often confused. While the interest rate refers to the annual interest expense of the loan, the APR reflects the annual cost of borrowing money from the lender.

Clear as mud? Don’t worry; we can help. Let’s take a closer look at the difference between these two terms and how each one impacts your loan.

Interest rate defined

The interest rate, or the nominal rate, is the rate of interest the lender charges the borrower for the loan. For example, a $300,000 mortgage with a 4% interest rate would have an annual interest expense of $12,000, or $1,200 a month. This number only represents the interest rate on the loan and does not factor any other costs.

Interest rates are influenced by the federal funds rate, which is set by the Federal Reserve, otherwise known as “the Fed.” The federal funds rate is the interest rate at which banks lend each other money overnight.

During an economic recession, the Fed will lower the federal funds rate to encourage consumers to borrow and spend more money. During the coronavirus recession, for example, the Fed slashed the federal funds rate to just .25%.

In contrast, during times of economic growth, the Fed will raise the federal funds rate to encourage personal savings for balancing out the cash flow and stabilizing inflation.

APR defined

The APR on a loan is the approximate annual cost of borrowing money from a financial institution.

The APR includes the interest expense, along with all other fees and costs involved in taking out the loan. This can reflect closing costs, loan origination fees, mortgage insurance, broker fees and rebates. The APR is expressed as a percentage of the entire loan amount and will nearly always be greater than the interest rate.

On a $300,000 mortgage with closing costs, loan origination fees and mortgage insurance totaling $5,000, the loan amount would be adjusted to $305,000. The 4% interest rate will then be used to calculate a new annual interest expense of $12,200. To determine the APR on the loan, divide the annual payment of $12,200 by the original loan amount to get 4.06%. The borrower will now pay this percentage of their loan each month.

Which number is more important to consider when taking out a loan?

Here’s where the two terms can get confusing.

When comparing rates on two different loans, the loan with the lower nominal interest rate will generally offer the better value since the bulk of the loan amount is being financed at a lower rate. Usually, the loan with a lower nominal rate will also feature a lower APR.

While a loan with a lower APR is generally the better choice, it’s important for borrowers to consider the length of time they plan to stay in their home. Most home buyers will need to purchase discount points, also known as mortgage points, to qualify for loans with lower APRs. Each point costs 1% of the mortgage (or $1,000 for every $100,000) and will lower the interest rate by .25%. Discount points need to be purchased upfront. This means the borrower will need to pay thousands of dollars at closing to qualify for a lower-APR loan.

It can take more than five years for the borrower to break even on the extra costs they paid for the loan through their lower monthly payments. Consequently, for home buyers who plan to move within the next decade or sooner, it may make more sense to choose a loan with a higher APR and fewer upfront costs.

Taking out a home loan involves multiple decisions, which will affect your finances for years to come. It’s important to learn the difference between interest rates and APRs and to run the numbers to determine which loan offers you the better value before choosing a loan.


If you’re planning to take out a home loan in the near future, connect with our Lending Specialists to explore your options at 503-275-0300 Option 2.

Your Personal RV Buying Guide

Buying an RV is a big decision, though. If your biggest assets are your car and your house, this decision represents a purchase that is somewhere between the two. There’s a lot to know before you set foot on a lot, and the more you research now, the better things will go.

With that in mind, here are three questions to ask yourself before you start shopping for an RV. With these as jumping off points for research, you can make informed decisions about your needs. You’ll also be able to more clearly communicate what you’re after, which will make the sales experience more pleasant for everyone.

1. What class are you in?

Broadly speaking, there are three classes of RV: Class A, Class B and Class C. Class A are the biggest and most comfortable. Built on big rig platforms, these are basically rolling houses. They feature full-sized couches and TVs, full bathrooms, kitchens and expandable bedrooms. Many also include storage underneath the vehicle (called the “basement” by enthusiasts) with enough space to stock supplies for a months-long journey. As one might expect for top-of-the-line vehicles, the price tags are as big as the vehicles, ranging from $60,000 to over a million for custom-built motorhomes.

Class B motorhomes are on the other side of the spectrum. These are built on full-size van platforms. They can include scaled-down versions of the same amenities in Class A motorhomes, but in a more maneuverable, less costly package. Expect to see a small kitchen, a compact bathroom, and enough sleeping space for 2-3 people for several weeks. The price tags on these vehicles run between $50,000 and $100,000.

Class C motorhomes offer a compromise between A and B. These start with cargo van platforms and extend the wheelbase somewhat to about the length of a small bus. Amenities will be more complete than in a Class B, but nowhere near as robust as in a class A. Definitely more vehicle than home, these usually run between $60,000 and $200,000.

There are other options, of course. Camper trailers, pop-ups, and fifth-wheel tow-behind campers can often fill the same needs at lower prices. It’s worth investigating these options, as well.

2. What’s your budget?

Before you make a major purchase, you’ll want to be clear on how much you can afford. Given the significant cost of purchasing an RV, financing periods are typically 10 years or longer. Because RVs depreciate, interest rates are slightly higher than home loan rates, too. It’s not just the monthly payment you need to include in your budget: you’ll also need to factor in for fuel, insurance, registration, and maintenance, even if you don’t go anywhere!

Finally, It’s also worth figuring out what you can budget for a down payment. You may be able to finance 100% of the purchase price of your RV, but putting money down helps protect you against depreciation. That means you’ll be able to get clear of your RV payment if you decide to sell it later on down the road.

3. When should you get financing?

While many dealers will try to work out financing in-house, it’s not a bad idea to go in with a pre-approval. It’ll allow you to negotiate from a position of confidence, and it’ll also prove to the salespeople that you’re serious about buying. Getting pre-approval will also make sure you don’t fall in love with an RV you can’t afford. Nothing can ruin a fun vacation like a big bundle of “How are we going to pay for this?” stress!


If you’re thinking about an RV, the time to talk financing is now. How much RV you can afford should be at the forefront of your selection process. Getting your financing in order will help you figure that out. Getting pre-approved is quick, easy & smart: apply online, give us a call (503.275.0300), or email us at loans@usacu.org.

Questions? Contact us.

Member Moment: Chase’s Story

In the old days of the internet, only corporate banks could afford streamline online banking services. These days, we’re living in a world where internet is everywhere, the services you use every day to manage your money like checking balances, transferring money and paying bills are just a few simple clicks or taps away. It’s easier than ever to access USAgencies Credit Union from distance away.

Our member, Chase, would like to share his thoughts on how USAgencies feels so local even when we are on the opposite side of the globe.

Tell us a little bit about yourself.
I am a 36 professional pursuing a career with the National Park Service (NPS), Golden Gate National Recreation Area, San Francisco California. My wife and I enjoy the Bay Area and love to explore the variety of cultures and foods. We have a 2 year old Husky named TOGO with lots of energy; he keeps us active and on our toes, lol!

Your Passion
I personally have a passion to pursue my higher education to PhD in the fields of business, technology, and human factors psychology. My wife and I possess passion and goal to open our own business specifically Thai cuisine as she is from Thailand. We love to travel experiencing other cultures and have visited Japan, Hong Kong, Vietnam, and Malaysia. Future trips we would love to explore together include Spain, Italy, Greece, Egypt, England, and Germany.

What is your favorite USAgencies’ moment as a member?
From the moment I opened an account to present the professionalism and quality of customer care USAgencies Credit Union (USACU) has provided is second to none. While traveling the United States and overseas USACU has been there to answer questions and provide support, reducing financial concerns while on the road and in the air. Second, when I require completion of international transactions (wire transfers) USACU has provided support that is easy and efficient. Finally, USACU and their staff provides world class support through Portland OR branch and with a variety of participating partnered branches.

What do you value the most about USAgencies?
I value most, the dedication to customer support, continued efforts to streamline business and process while maintaining quality, and how my experiences with USACU still feels like a local credit union even when I am across the country or somewhere traveling the globe.


Thank you Chase for sharing your member moment!

Want to share your USAgencies moment? Submit your story to social@usacu.org or via telephone at 503-275-0300. We’d love to hear from you!

Your Complete Guide to Using Your Credit Cards

Q: I’d love to improve my credit score, but I can’t get ahead of my monthly payments. I also find that my spending gets out of control when I’m paying with plastic. How do I use my credit cards responsibly?

A: Using your credit cards responsibly is a great way to boost your credit score and your financial wellness. Unfortunately, though, credit card issuers make it challenging to stay ahead of monthly payments and easy to fall into debt with credit card purchases. No worries, USAgencies Credit Union is here to help!

Here’s all you need to know about responsible credit card usage.

Refresh your credit card knowledge

Understanding the way a credit card works can help the cardholder use it responsibly.

A credit card is a revolving line of credit allowing the cardholder to make charges at any time, up to a specific limit. Each time the cardholder swipes their card, the credit card issuer is lending them the money so they can make the purchase. Unlike a loan, though, the credit card account has no fixed term. Instead, the cardholder will need to make payments toward the balance each month until the balance is paid off in full. At the end of each billing cycle, the cardholder can choose to make just the minimum required payment, pay off the balance in full or make a payment of any size that falls between these two amounts.

Credit cards tend to have high interest rates relative to other kinds of loans. The most recent data shows the average industry rate on new credit cards is 13.15% APR (annual percentage rate) and the average credit union rate on new credit cards is 11.54% APR.

Pay bills in full, on time

The best way to keep a score high is to pay credit card bills in full each month — and on time. This has multiple benefits:

  • Build credit — Using credit responsibly builds up your credit history, which makes it easier and more affordable to secure a loan in the future.
  • Skip the interest — Paying credit card bills in full and on time each month lets the cardholder avoid the card’s interest charges completely.
  • Stay out of debt — Paying bills in full each month helps prevent the consumer from falling into the cycle of endless minimum payments, high interest accruals and a whirlpool of debt.
  • Avoid late fees — Late fees and other penalties for missed payments can get expensive quickly. Avoid them by paying bills on time each month.
  • Enjoy rewards — Healthy credit card habits are often generously rewarded through the credit card issuer with airline miles, reward points and other fun benefits.

Tip: Using a credit card primarily for purchases you can already afford makes it easier to pay off the entire bill each month.

Brush up on billing

There are several important terms to be familiar with for staying on top of credit card billing.

A credit card billing cycle is the period of time between subsequent credit card billings. It can vary from 20 to 45 days, depending on the credit card issuer. Within that timeframe, purchases, credits and any fees or finance charges will be added to and subtracted from the cardholder’s account.

When the billing cycle ends, the cardholder will be billed for the remaining balance, which will be reflected in their credit card statement. The current dates and span of a credit card’s billing cycle should be clearly visible on the bill.

Tip: It’s important to know when your billing cycle opens and closes each month to help you keep on top of your monthly payments.

Credit card bills will also show a payment due date, which tends to be approximately 20 days after the end of a billing cycle. The timeframe between when the billing cycle ends and its payment due date is known as the grace period. When the grace period is over and the payment due date passes, the payment is overdue and will be subject to penalties and interest charges.

Tip: To ensure a payment is never overdue, it’s best to schedule a time for making your credit card payments each month, ideally during the grace period and before the payment due date. This way, you’ll avoid interest charges and penalties and keep your score high. Allow a minimum of one week for the payment to process.

Spend smartly

Credit cards can easily turn into spending traps if the cardholder is not careful. Following these dos and don’ts of credit card spending can help you stick to your budget even when paying with plastic.

Do:

  • When making a purchase, treat your credit card like cash.
  • Remember that credit card transactions are mini loans.
  • Pay for purchases within your regular budget.
  • Decrease your reliance on credit cards by building an emergency fund.

Don’t:

  • Use your credit card as if it provides you with access to extra income.
  • Use credit to justify extravagant purchases.
  • Neglect to put money into savings because you have access to a credit card.

Using credit cards responsibly can help you build and maintain an excellent credit score, which will make it easier to secure affordable long-term loans in the future. As a member of USAgencies Credit Union, you have access to your credit score and credit report for free with My Credit Score!


Have more questions about credit cards? Connect with us at 503.275.0300 or visit us at USACU.org.

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