In it’s simplest terms interest rate is the price you pay for taking out a loan. Interest is a percentage of the initial borrowed principal amount, and can be a variable rate or a fixed rate. As we all know, it takes money to borrow money.
If that is the definition of interest rate, then what is the APR?
People tend to use the two terms interchangeably. There are actually a few small differences between the two. While they are quite similar, they are not exactly the same thing.
APR Made Easy
The interest rate is one of the factors of the APR, and in fact may be the biggest part of it. But interest only dictates a percentage of the initial borrowed amount, while APR adds in additional factors.
Annual Percentage Rate gives a larger overview of the full life of the loan, and how much you will have to pay over time. This of course includes the interest, but also adds in the associated fees and charges that most lenders levy on their customers.
The APR is always going to be a bit higher than the interest rate for this reason. It is supposed to give borrowers a better overall understanding of what the loan will cost them.
Do We Really Need Two Numbers?
Just like with the interest rate, APR is a number consumers use to compare different lenders in an “apples-to-apples” side-by-side comparison. Some lenders will offer lower rates, but also have far higher APR because of their various fees and charges.
APR can spread out those various fees, dividing them evenly out across every payment for the life of your loan. Because of this, APR can be far more valuable for people with longer repayment window (as in a mortgage).
On the other hand, for very short term loans the situation can be very different.
For a quick look at PR Title Loan’s repayment rates and APR, just scroll down to the bottom of the page. We post our loan rates on every single page of our website
If you have direct questions call us or click here.
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