APR vs. Interest Rate in Denver: What’s the Difference?

If you learn one number for comparing loans, make it the APR. Understanding APR vs interest rate in Denver helps you see past a low-looking rate to what a loan really costs, and it is the key to how Colorado’s 36% cap works. This guide explains both terms in plain English, shows dollar examples, and lists the questions to ask before you sign.

The short version

The interest rate is the price of borrowing the money itself, shown as a yearly percentage of the amount you owe. The annual percentage rate, or APR, starts with that interest and adds certain finance charges, then shows the whole yearly cost as one percentage. Two loans can have the same interest rate and very different APRs. That is why federal Truth in Lending rules require lenders to show you the APR in writing before you commit.

Interest rate: the base cost

The interest rate tells you how fast interest builds on the unpaid balance. It does not, by itself, count most fees. A lender can advertise a friendly-looking rate and then add charges that the rate never reflects. If you compare only interest rates, you are comparing part of the price.

The interest rate still matters. It drives your monthly interest charge, and it is what you can often negotiate or improve by building credit. Just do not treat it as the full cost.

APR: the fuller picture

APR rolls the interest and certain required finance charges into a single yearly figure. Because it captures more of the true cost, it is the fairer way to line up offers from different lenders. A loan with a lower interest rate but a large fee can carry a higher APR than a loan with a slightly higher rate and no fee.

APR is not perfect. It does not tell you how long you will owe or how many dollars you will pay in total. Use it as the first filter, then look at the term and the total repayment.

Colorado’s 36% limit is an APR limit

Colorado is a 36% APR state. Voters approved Proposition 111 in November 2018, and it took effect on February 1, 2019. It capped payday loans, which the Deferred Deposit Loan Act calls “deferred deposit loans,” at a 36% annual percentage rate. Because the cap is an APR, a lender cannot charge a modest interest rate and then add separate fees that push the real cost higher. The Act lets a lender charge only the charges it expressly allows (C.R.S. § 5-3.1-105).

For more on how the number is figured, see Colorado’s 36% APR cap: how it’s calculated.

What changed after Proposition 111

Before the cap, Colorado payday loans averaged well over 100% APR. Once borrowers could compare an all-in yearly rate, the gap between the advertised price and the real price was hard to hide. Since the cap took effect, most payday storefronts in Colorado have closed.

Today the legal product is best described as a small installment loan. It is limited to $500 per borrower at any time, and it must have a term of at least six months. There is no maximum term and no minimum finance charge. If you want the full picture of how these loans look now, read Payday loans in Denver: why they look different now.

A worked example at 36% APR

Here is what the cap looks like in dollars. Suppose you borrow $500 at 36% APR and repay it in six equal monthly payments:

• Monthly payment: about $92.30
• Total interest and finance charges: about $53.79
• Total repaid: about $553.79

For a $300 loan on the same terms, the payment is about $55.38 a month, the cost is about $32.28, and you repay about $332.28. These are the most you could be charged at 36% APR over six months, so any offer that asks for more should be a red flag. If you pay the loan off early, Colorado law requires the lender to refund a prorated share of the finance charge for the time left.

Watch the term as well as the rate

A longer term lowers your payment but raises the total cost. Take the same $500 loan at 36% APR and stretch it to 12 months. The payment drops to about $50.23 a month, but the interest and finance charges rise to about $102.77. You would repay about $602.76 instead of $553.79.

That is the trade-off hiding behind a low monthly payment. Compare APR first, then compare the term and the total you will repay. A payment that fits your budget is useful, but a payment alone does not tell you what the loan costs.

When a fee makes a lower rate cost more

Here is an illustration, not an offer. Imagine two $1,000 loans repaid over 12 months. Offer A has a 10% interest rate and a $60 fee. Offer B has a 12% interest rate and no fee.

• Offer A: about $55 in interest plus the $60 fee, so roughly $115 in total cost.
• Offer B: about $66 in interest and no fee, so roughly $66 in total cost.

Offer A has the lower interest rate, but Offer B costs less. The fee is part of what APR captures, which is why the APR on Offer A would come out higher. This is the exact gap that comparing APRs is meant to expose.

Using APR to compare Denver options

When money is tight in Denver, line up every choice by APR, then by total cost:

• Credit union loan: credit unions often offer lower rates, though you need to meet their membership rules. As an illustration only, $1,000 at 18% over 12 months is about $91.68 a month and about $100.16 in interest.
• Payday alternative loan (PAL): some federal credit unions offer PALs. The cap is 28% interest plus an application fee of no more than $20.
• Small installment loan from a licensed lender: in Colorado, a deferred deposit loan is capped at 36% APR and $500.
• Credit card cash advance: check the card’s stated APR and any advance fee in your agreement.

Credit unions are often the cheapest place to start. Our guide on credit unions vs. high-cost lenders in Denver explains what to ask, and payday vs. installment vs. personal loans compares the main loan types side by side.

APR vs MAPR for service members

Active-duty service members, including active Guard and Reserve, and their covered dependents have an extra protection. The Military Lending Act caps the cost of most consumer loans at 36% MAPR, the Military Annual Percentage Rate. MAPR is broader than APR because it includes most fees. Airmen and Guardians stationed at Buckley Space Force Base in Aurora, next to Denver, may fall under this rule. Veterans, retirees and civilian workers are not covered by the Military Lending Act.

Questions to ask before you sign

Make it a habit to ask for the APR first. A lender who cannot or will not state it clearly is a warning sign. Then ask:

• What is the APR, and what charges are included in it?
• What is the term, the payment amount and the total I will repay?
• Is there a refund of finance charges if I pay early?
• Is the lender licensed in Colorado?

Read the written disclosure in full, and take your time. If you are comparing several lenders, our loan application checklist for Denver can help you gather what you need. Your protections as a borrower are covered in your rights as a Colorado loan borrower.

Check the license and get help first

Lenders making loans to Coloradans should hold a Colorado license, including many online lenders. You can search for a license or file a complaint at coag.gov, the website of the Colorado Attorney General. For general rules on comparing credit costs, the Consumer Financial Protection Bureau has plain-language guides.

If a bill is what is pushing you toward a loan, ask for help first. Xcel Energy offers payment arrangements for past-due balances, and Colorado’s LEAP helps with winter heating bills through Colorado PEAK. You can also dial 2-1-1 to reach Mile High United Way for local resources in the Denver area.

This article is educational and is not financial or legal advice. Before you borrow, confirm the lender is licensed with the Colorado Attorney General — Consumer Credit Unit (UCCC Administrator), and read the fee disclosure in full.