Are you just a little uncertain about what the terms interest rate, annual percentage rate (APR) and finance charges mean? You're not alone — and one reason is that while each term means something a little different, they tend to be used interchangeably.

Interest rate is the percentage of principal you pay to borrow money from the lender. For example, you may borrow at a rate of 6.5%.

APR is the total cost of borrowing for one year, including interest, application fees and other charges, expressed as a percentage of principal. A loan's APR may be different than its interest rate alone, and it's the number to use when you compare loans.

Finance charge is the expense of borrowing money from the lender, expressed in dollars (vs. interest rate, which is expressed as a percentage of the loan amount). It's calculated by multiplying the APR times the principal. If you borrow $100,000 for 30 years with an APR of 7%, your finance charge will be $139,508.