The annual percentage rate of a loan is the percentage of the borrowed sum that you pay in interest and/or fees for one year. The lowest APR as compared to the highest could mean a different of hundreds, even thousands, of dollars per year.
Finding the lowest A.P.R. for the cash or credit you borrow is not just important: it is vital.
Credit Cards and APR
Credit companies are the biggest and loudest proponents of A.P.R. sometimes to a fault.
Small loan companies, and the big banks, tend to take a more well-rounded approach to lending. A.P.R. is but one facet of the financial deal.
Credit cards on the other hand promote their A.P.R. with intensity. This can be a good thing, because with constant competition to undercut one another, many credit cards offers zero A.P.R. for a limited time. Or incredibly low APR for a set period.
If you play your cards right, you can transfer balances between cards and maintain a low or nonexistent interest rate for a long time. It does take some work, though!
Biggest Loans Often Have Lowest APR
As a rule of thumb, a big-dollar loan like a student loan or a mortgage will have the lowest APR you can find. The catch is, of course, it is a lower rate on a MUCH larger sum of money, which is paid off over a much longer period of time.
In other words, you will still pay more in interest for these loans, even though the percentage rate is smaller.
Personal loans, or private loans, tend to have wildly different A.P.R. rates. The fixed or variable APR for these loans can be anywhere from 2% to 25%, all depending on the lender and your credit score.
Not all lenders use your credit score, but many of them do.
When A.P.R. is Not Annual
As stated, APR stands for Annual Percentage Rate, but it does not always apply to a full year.
For example, you will see credit card offers of “0% A.P.R. for 6 months.” This means they charge no interest for that time period. It’s not quite “annual” though, is it?
When dealing with the fine print of borrowing money, never assume anything is what it sounds like!