Financial gurus - difference between rate and APR?

[landrun]

Let's say you're considering getting a loan, for anything, house, vehicle etc...

What is the difference between the interest rate and the APR?
How would you compare two loans with different rates/apr and know which is really the better loan - meaning, with which loan will you pay the least over the life of the loan.

It is my understanding that the APR includes the interest rate plus any extra costs, like closing etc... So, should you really ignore the interest rate and focus on the APR instead?

I've never really understood this and think its time I figured it out. :O

[Frozen Sooner]

You have it pretty much right.

APR includes any prepaid finance charges paid to the lender. Not all closing costs are included in APR.

Interest rate is the rate at which your amount financed accrues interest.

Yes, you should focus on the APR not the interest rate, which is why the Truth in Lending Act requires disclosure of APR as the true cost of financing.

Make sure you're aware, by the way, that prepaid finance charges make your effective APR skyrocket if you pay off early.