What is the difference between Interest rate vs Annual Percentage Rate (APR)?

1. INTEREST RATE:

• From Bankers point of view: 

     An interest rate is the cost of borrowing, i.e., the percentage of money that a banker or financer or lender of the money charges against the loan provided by them. The interest rates are always expressed in terms of percentage of the principal loan amount for a specific term or period.

How interest rate works:

The process of finding interest rate is quite a simple one. The formula for finding interest rate is stated below:

INTEREST RATE = [(Total Repayment Amount – Loan amount) / Amount Borrowed] * 100

For example: Let us assume, ABC Co. Ltd is purchasing furniture for its newly built building in New York city. XYZ Bank agrees to lend $25000 million to purchase furniture but asks ABC Co. Ltd. To payback $30000 million at the end of the year. Now, let us calculate the interest amount ABC Co. Ltd. has to pay to XYZ Bank:
INTEREST RATE = [$(30000 – 25000) / $25000] * 100
       = [$5000 / $25000] * 100
       =20%

• From Customers point of view:

     In simple term, interest rate is the reward that a borrower pays to the lender against the money used by him. In case of financial institutions, interest rates are generally decided by the institutions itself as they pay interest to the customers who keep money in their institutions.

2. ANNUAL PERCENTAGE RATE (APR):
    Annual Percentage Rate (APR) is similar as interest rate but has very small difference between them. While calculating interest rate, it only takes into consideration the principal amount of borrowing. But, in case of Annual Percentage Rate (APR), it considers all the fees and other costs along with the principal amount. The formula for the Annual Percentage Rate (APR) is stated below: