Everything to Know About APR: What It Is and What to Watch Out For
The Annual Percentage Rate, or APR, is a term that you’ll hear a lot regarding loans and credit cards. It can be not very clear to understand what the APR means when it comes up in conversation. To help you navigate the world of APRs, here’s everything you need to know about this important metric.
Let’s get started!
What is APR?
The APR is an acronym for “annual percentage rate.” It’s essentially how much money you’ll payout to the lender or credit card company over a year. The various components that make up your APRs include:
- Your payment amount is expressed as a % of monthly debt payments (i.e., by multiplying your monthly bill with your loan payoff amount)
- Your number of borrowing points (or balance used for calculating interest rates ) is expressed as a % of your payment amount.
- Your repayment term (the time it takes you to pay off the loan) is expressed in months.
The APR is calculated by taking these numbers and comparing them with each other. The whole process can be thought of as follows: Your monthly bill ^ monthly percentage yield = your number of borrowing points annual percentage rate. Keep in mind that this formula varies depending on your loan’s actual type, value, and features.
What To Watch Out For.
1. Is it too high? Are you paying significantly more than 20% per year on your loan or credit card payments because APR is so high compared to the actual value of what you owe?
2. Do I qualify for a better rate?
Do you qualify to get an APR that’s lower than what your card or loan company currently offers you?
Final Thoughts.
The APR is important to consider whenever you decide whether or not it’s financially wise for you to continue paying your bills. You’ll need an idea of how much money you’ll pay overtime to break even (or make any actual amount of profit). That notion might not be as simple as it sounds, knowing that numbers can change drastically based on variables like credit quality and financial habits.
From this article, it’s possible to collect a wealth of information on the basics of APR.
Have we left anything about APR? Let us know in the comment section below.
