What Is APR and Why Does It Matter to Me?
Whether you are borrowing money through a bank loan, an installment loan, or another type of loan, you will be given an interest rate and an annual percentage rate (APR) that tells you how much it will cost to borrow the money. While interest rates and APRs can be very similar, when it comes to loans they have different meanings. In today’s blog, the Quick Loans team explains what exactly an APR is and why it matters to you.
What Is APR?
When you borrow money using a loan, you will be given an APR and an interest rate. The interest rate is the percentage you are charged on the amount of money that was initially borrowed. APR is the amount of money you will be charged in the form of a yearly percentage rate. APR may also include any fees that you may be charged to take out the loan.
Types of APR
Whenever you take out any type of credit or loan, it is important to learn about the different types of APR you may be faced with and what type of APR will be on your loan. The two most common types of APR are fixed and variable.
A fixed APR means the interest rate of your loan does not change during the life of the loan, even as market interest rates increase or decrease over time. Fixed interest rates are beneficial because payments generally stay the same over time.
A variable APR means that the interest rate of your loan changes as the market interest rates increase or decrease over time. This means that your payments will change as the APR moves up or down. While variable interest rates may provide lower interest rates up front, the downside is that they may increase at different times throughout the life of the loan.
Whether a fixed or variable APR is better for you depends on how long you will have the loan and the interest rate at the time of your loan.
What Determines Interest Rate?
When you apply for a loan, it is ultimately the lender that will determine the interest rate. They will take into account your credit score, the type of loan you are applying for, and the market interest rate at that time.