What is an APR?



What is an APR?

You’re probably excited about buying your new car but don’t get too happy until you surely know what you’re getting into. Chances are that you’ve been offered a great or unbelievable car loan deal, but make sure to look through it thoroughly. It may not look as good as it really seems. What you also need to work on is the APR or Annual Percentage Rate usually set by the company. Let’s understand what this really means.

What is an APR?


Like mentioned above, APR equals Annual Percentage Rate. When you take out a loan, the APR could be understood as the interest that is added to the total amount of the loan and other costs as well. To begin with, APR is calculated annually and is split over the 12 months to calculate the monthly payment.

Let’s say, for example, you’ve considered borrowing $10,000 for the vehicle along with the personal loan at a total of 3% APR which would be repaid over a period of three years. The lender would now apply the 3% APR added across the three years. Additionally, the lender also adds it to the borrowed cost and splits it into a 36-monthly payment period. Through this example, you should understand that over the period of three years, you would need to make fixed monthly payments of about $290.81. This would further add up to $470 toward interest and other charges and $10,000 toward the loan.

Representative APR


Considering that not everyone would have the same credit profile, not everyone would be offered the same APR when borrowing money. This could complicate the situation further when the lender advertises an auto loan offer. Representative APR is considered as the best medium to tackle the issue. This kind of APR looks at the lowest APR that the lender would offer to most people.

Let’s take for example that you see an advertisement that offers an auto loan at 12% APR. This would mean that most people accepted for the loan can make their way to the offer. The other half may not stand a chance toward the offer considering that it would be offered with a higher APR. Representative APR would not be able to take into account the rejected applicants. The downfall to this is that many would assume that they would get the representative APR and then consider applying. Unfortunately, when the loan is accepted, the rate could possibly soar up making it extremely difficult for the loan to be paid back.

What’s the Difference in the Exact APR?


You only know the difference if you get a finance comparison done by a vendor. The service would help you take a look at your finance options. This would help when you apply for a car loan since the preferred APR would not only be designed to fit your credit score and other details, you will also end up paying exactly what you’ve been told.


Even while this article lists the required information, it is important that you also make it a point to speak with people who have dealt with similar issues before.



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