When applying for a loan, you should always be aware that an annual percentage rate (APR) is different than an interest rate.

The APR is computed from the amount financed and is based on what your proposed payments will be on the actual loan amount credited to you at settlement.

For example, in a $50,000 loan with $2,000 Prepaid Finance charges, a 30 year term, and a fixed interest rate of 12%, the payments would be $514.31 (principal and interest).

Since the APR is based on the Amount Financed ($48,000), while the payment is based on the actual amount given ($50,000), the APR (12.553%) is higher than the interest rate.

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