At some point in your life, you will probably take out a rather large loan, typically for a home, to which you will be assigned an agreed upon interest rate and then often, a higher APR rate. A lot of people don't pay a lot of attention to the fact that the APR rate is higher than the advertised interest rate, or even if they do recognized that one number is higher than the other, don't understand why, or even question it, but they probably should, because they are the ones responsible for making those payments over the term of the loan.
For instance, your credit score might qualify you for a thirty year fixed loan rate of 4% in which after your down payment on the property, you have a principal of $200,000 to service. You might think then that to figure out how much your monthly payment would be would could down to a simple calculation of 4% of the principal amount of $200,000 which would equate to a total of $667 per month. That number would not be correct, because it only takes into account, the interest portion of the loan and does not take into account that the loan as given by the bank in which you will become the owner free and clear after thirty years, that you must also pay down the principal of the loan, which is $200,000, month by month. In this particular example, your actual payment would be $955, of which $288 would be applied to your principal of $200,000 and the interest would be calculated against that same $200,000. The very next month, your payment would be the same, but the division would be ever so slightly different, because the principal would have dropped from $200,000 to $199,712, meaning your interest payment would drop from $667 to $666, and your payment towards your principal would have risen to $289. So that, inexorably, over the length of the loan, while your payment amount would remain the same, the amount of money being paid to interest would decline, and the amount of money being applied to your principal would increase. After ten years, your principal will have declined from $200,000 to $157,568, or a decline of 21.22% in your principal, even though you have been paying on your loan for 10 years, or 33% of the length of time for your loan. What this means and signifies to the consumer, is that even though you have been paying your loan faithfully for ten years, your ownership equity is significantly less than the amount of time that you have been in the house, so that if you were to sell or move from the house your equity would not be 33%, which seems reasonable, considering that you have been in the home for ten years, but would instead leave you with an amortization percentage of just 21.22%, plus any appreciation of the home.
Then there is the difference between the interest rate as advertised, for instance, the aforementioned 4%, and the APR rate which will typically be slightly higher. The reason that this is true, is that oftentimes there are fees, points, and other assorted charges, that rather than being assessed against you in such a manner that you pay those costs up front, they are tagged onto the loan itself, so that instead of a loan of $200,000, your loan might be $204,000 because of necessary fees and points, and that extra $4,000 must be paid off, and the only way to do so is to make it part of the loan, which would increase your payment from $955 to $974 a month, and make your APR therefore 4.165%.
Those that aren't gifted with dealing with numbers will often just end up trusting that the numbers as presented by the bank are both fair and accurate. While they certainly will be accurate, the fairness depends a lot upon your particular circumstances, recognizing that the entire banking apparatus are experts at this game, and you facing the most important financial obligation of your life, are probably not.