The interest rate is the amount a lender charges a borrower and is a percentage of the amount loaned. The interest rate on a loan is typically noted on an annual basis known as the annual percentage rate (APR).

As you can see in this simplified example, the lender using compound interest gets $3.1 more than the lender using simple interest, and the borrower using compound interest pays $3.1 more than the borrower using simple interest. Interest can be compounded semiannually, quarterly, monthly, daily, or even continually. The more frequently the interest is compounded, the more interest is actually being paid on the loan. 

Annual Percentage Rate (APR)

The yearly interest generated by money charged to borrowers or paid to investors. APR is a standard way to refer to and compare different interest rates but does not take compounding into consideration. Since APR does not account for compounding, the actual (or real) interest rate is usually higher. Using APR, you can compare different lenders, credit cards, or investment products. APR does not just apply to loans, but credit cards and insurance as well. 

• Fixed APR: The interest rate is guaranteed to stay the same throughout the loan period. 
• Variable APR: The interest rate may change at any time. 

Annual Percentage Yield (APY)

The APY does take compounding into account. This means that a loan's APY is typically higher than its APT. 

Nominal Interest

Nominal interest does not account for any other expenses accrued by the borrower. For example, the nominal rate on a mortgage would be lower if you don't account for closing costs, insurance, and origination fees. 

Daily Periodic Rate

The interest charged on a loan's balance on a daily basis. In other words, this is the APR divided by 365.