What is an APR?
If you’re new to the finance world, then you’ve come to the right place. This article should help you understand what APR means and everything attached to it. APR or Annual Percentage Rate against a loan will give you a clearer picture on how your debt will be accumulated. For all those wondering how exactly you could go about getting yourself a good APR, you may want to understand that it depends on your credit score and the kind of debt you’ve put yourself into.
Interest Rate vs. APR
For you to understand, here’s the difference between an interest rate and APR against a loan or debt. Talking about the interest rate, when put against a debt or loan, it will not include any kind of fee that the borrower needs to pay, either immediately or in the future. APR, on the other hand, annualizes the fee which results in an annual interest rate.
What is a Good APR?
The answer to this question depends on an array of factors. However, it partly depends on the current interest rate. Lenders, for example, will take the prime rate and adjust their way through the rate to be able to increase the margin. Therefore, anyone with a loan against their name when the interest rates decrease, will find themselves with a different APR when compared to individuals with a high-interest rate.
How Does it Link to Credit?
The APR you receive will also be linked to your credit score. It is important that you pay off all pending loans quickly if you do not want to have bad credit history ruining your chances.
What Is 0% APR?
Along the way, you may have seen several advertisements marketing the 0% APR for credit cards and loans. But this does not mean that you will not have to pay any kind of interest on the loan. It’s nothing but an introductory deal or offer. Depending on the knowledge you have about APRs and how you are able to handle it, it could come across as a trap or a big opportunity. If you do end up using the 0% APR to transfer funds from an earlier credit card and make the required payments before the APR runs out of its validity while having your interest rates soar, you will have definitely come out on top.
On the other hand, if you get the balance transferred and still have some balance left when the rates jump to a certain percent, you might find yourself in real trouble. You might also want to check on any fees attached to the balance transfers. These fees could have an impact on the APR. The same principle would apply to a vehicle. If you invest in a luxury car instead of what you can really afford simply because you’ve been enticed by the 0% APR, you could miss payments once the APR comes in to play.
Make sure to carefully observe and study what you will be getting into before making a decision, especially when it comes down to the APR.