Borrowers can save themselves a lot of time and money with a few key pieces of information. Before you commit to any loan, you need to understand how APR works and what it means to you. Always remember that lenders make money off you by lending you money, and it is in your best interest to make sure you pay as little as you can while getting the best deal you can find.
APR
All loans come with an APR. APR is simply a way lenders describe how much interest they charge borrowers whenever the borrower takes out a loan. For example, if you get a credit card with a 12 percent APR, the card issuer charges you 12 percent interest a year, or 1 percent per month, on any balances you carry on the card.
Low APR
All loans have at least one associated APR, and what constitutes a good or low APR depends on a variety factors. For example, a credit union might offer car loan with an APR ranging from 3.49 to 12.25 APR. The best APR on this loan is typically only available to borrowers with excellent credit, while the higher rates go to borrowers with less reliable credit. Further, different types of loans, such as credit cards or mortgages, have higher or lower interest rates associated with them. These rates also change over time.
Getting a Good APR
Your ability to get a good APR on any form of credit depends largely on how safe and reliable a borrower your creditors consider you. Your credit score is a number that tells lenders how responsibly you've used credit in the past. If you have a high score, you generally get a better APR on whatever loan you apply for. However, not all lenders offer the same rates, so even if you have an excellent credit score, you should still shop around to try to find the best deal available to you.
Changes in APR
Just because you have a low APR loan now doesn't mean you'll always get that rate or be able to keep it. Some loans have interest rates that change over time. Variable rate credit cards, for example, come with an initial APR, but the lender can change this rate over time. Typically, interest rates change as various economic factors change, such as the prime lending rate, or prime rate. The prime rate is the amount of interest banks charge their best customers and fluctuates over time.
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