In the process of looking for a loan to work with, you’ll come across lenders advertising their best APR vs interest rate. This is a major requirement for lending organizations to show both rates to customers to give them a sense of all the respective interest rates and lending fees.
But what is the difference between APR (or Annual Percentage Rate) and interest rate?
Well, in today’s post, you’ll get to know the difference when choosing a loan, and if a higher or lower APR will be better for you. You’ll also get to know if APR is higher than the interest rate when getting a loan.
So if you’re currently in the process of getting your first loan offer, then you’ll love the guide; let’s dive right in!
Understanding Interest Rate
The interest rate on a loan offer is simply the money that it costs you to borrow on that offer.
A loan with simple interest can be applied in various intervals (daily, monthly, or yearly), all dependent on the loan agreement, and not considering any other additional fee that relates to the offer. These kinds of loans usually apply the interest rate to only the principal balance.
But a loan with compounding interest has its interest rate applied to the balance and the interest accrued over time.
Understanding APR Rate
An Annual Percentage Rate (APR) is a calculation of both the interest rate on a loan offer and the loan’s finance charges, all expressed as an annual cost for the entire period of time of the loan offer. Simply put, it is the overall cost to borrow money as expressed as an annual rate.
This is usually higher in cost than the interest rate because it also includes all applicable lenders’ fees. Depending on your loan type and terms, fees such as administrative (or origination fees), application, and closing fees may be included in your loan’s APR.
A loan offer with equal amounts of interest rate and APR simply implies that such loan offer does not have any additional fees attached to it.
A loan’s APR gives you the most sense of the true cost of the loan offer, but note, it does not give you a clear idea of how much you’ll be accruing in fees for any potential late payment on the loan offer (or prepayment penalties).
Application of APRs in Mortgages, Personal Loans, and Credit Cards
Understanding exactly what goes into an APR goes a long way in helping you to compare various loan and credit card offers.
This is because, and as discussed earlier, APRs include both interest rates and additional fees associated with a loan offer, which in turn can help you know the total cost of your loan or credit card offers, and help you decide which offer best suits you.
Mortgage Loan APRs
In the light of mortgages, the APR may take into account the:
and all closing costs
However, it may not necessarily include some required mortgage lenders’ fees (such as a credit check fee).
Also, an adjustable-rate mortgage (ARM) might not reflect the loan’s maximum potential APR in the mortgage’s initial APR. This sometimes can be lower than the interest rate on the offer.
The APR on an adjustable-rate mortgage (ARM) can only be known on paying the loan offer.
Personal Loan APRs
A personal loan is usually a fixed rate short-term loan, which implies that your interest rate remains constant over the total duration of the loan offer.
On the other hand, the APR on a personal loan covers both your interest rate and any additional loan fees on the offer such as your origination fees. In most cases, personal loan APRs may be a bit higher than its interest rate, but in cases where there are no additional loan fees, then both the personal loan APR and interest rate remain the same.
Credit Card APRs
Credit card APRs are quite different in the sense that, it defines the interest rate that you (the customer) will pay when carrying a balance from month to month. That simply goes to say that if you are faithful with your monthly bills and pay them in full, then you will not accumulate any interest on your credit card.
This is usually why both credit card APRs and interest rates are the same.
And also, with credit cards, there are no extra fees (such as cash advance, late payment fees, balance transfer, etc.) involved. But still, a credit card can accrue some penalty APRs which usually apply to a user’s entire current balance if his or her payment is late.
This is also one major factor that accounts for different APRs for different types of credit card transactions or balances.
APR vs Interest Rate FAQs
#1: Are APRs Higher than Interest Rates?
Yes, APRs are usually higher than interest rates, and this is common because interest rates often constitute a component of APRs.
can also be related to the additional fees that an APR may accrue.
#2: What is a Really Good Personal Loan APR?
Specifically speaking, there’s really no best fit for a good personal loan APR. Rather, it’s more important to consider your personal finances when looking for a good personal loan APR to work with.
#3: Is a Higher or Lower APR Better?
When comparing cash advance loan offers, a lower APR usually signifies a loan with a much lower total cost of borrowing. Thus, in most cases, a lower loan APR may seem a due fit for you, but still, this shouldn’t be the only metric for you to consider when taking out a loan.
You also need to confirm that you are working with a reputable lender to ensure your comfort with the repayment of your loan offer.
Basically, whenever you take up a loan offer, lenders get rewarded for their services via both the designated interest and APR rate on the agreed loan offer.
A high or low loan APR doesn’t really mean that such a loan offer is the best for you – it all depends on your loan type, purpose, and lender.
Would you rather take up a loan offer with a relatively low APR and have a lender calling and messaging you all day, even prior to when your loan offer is due?
these constitute a major factor to consider when deciding on a loan offer to
take out for your lending purpose.
We are here to assist you in finding a reliable moneylender to solve your financial troubles without much hassle. Using our experience in the field, we will provide you the required guidance to apply and get a personal payday loan in less than 24 hours.
Short term loans are emergency credit loans that have been designed for short term financial issues.
The loan amount is small and limited to a fixed upper limit. The loans are exclusively created for the short term and will become expensive burdens when extended and used for long-term purposes.
The operators of Instant Payday NV are not lenders. We are neither a bank nor a financial institution.
We are not involved in the process of making credit-based decisions related to lending, offering loans, or collecting repayment.
The website has been created to act as a bridge, a connecting agent between the applicants and the moneylenders.
We do not charge any fee to process the loan application or help our customers find a reliable match for a loan from a third-party lender.
We do not oblige any user/ customer to contact the lender or to accept a loan application.
The data present on the website related to short-term loans and the industry practices are for information purposes only.
Instant Payday NV does not collect, store, or access the details related to fees and charges levied by the lenders.
We do not endorse any of the lenders in the network.
Short-term loans are not available in all states. Not every lender in the network can offer a loan of up to $1000.
We cannot guarantee that the loan application will be approved by a lender.
Instant Payday NV also cannot guarantee that every application will be successfully matched with a lender or that the lender will provide the applicant the loan amount.
The lenders might perform a credit check through one or more credit bureaus (which include but are not limited to the major credit bureaus) to determine the reliability of the applicant.
The lender will also need to perform other verifications such as confirming the social security number, national ID, driving license number, or any other identification documents submitted by the applicant.
The terms of the loan proposal depend on the lender and various factors such as the federal laws and state laws, or industry regulations.
The terms and conditions of the loan proposal will vary from lender to lender and from one application to another.
APR (Annual Percentage Rate) is the interest rate calculated per annum for the loan. Instant Payday NV is not a lender.
We do not have the required information pertaining to the rules, regulations, and terms used to calculate APR by individual lenders.
APR calculations vary from one lender to another, one state to another. They also depend on various factors that decide the APR of a loan. The credit rating of the applicant can be one of the reasons.
Any other additional charges including but not limited to the origination fee, late payment fee, non-payment penalties, or non-financial that include debit collecting actions, late payment reporting, etc. come under the responsibility of the lender.
Instant Payday NV has nothing to do with the payments charged by the lenders or the action taken by them.
We do not maintain any information regarding the same. The charges and actions are to be fully
disclosed by the lender as a part of the loan agreement. The calculation of APR is the annual rate and not the financial charge of the product.
Implications of Late Payment
We highly recommend our customers to contact the lenders to enquire about the possibilities of late payment.
In the case where late payment is considered possible, the late payment fee is applicable and implied.
The laws of the state and the federal govern the cases of late payment fees and vary vastly.
All details related to the procedures and costs associated with late payment are disclosed in the loan agreement.
Customers should carefully review the terms before signing the contract.
Implications of Non Payment
In case of nonpayment of the loan, both financial and nonfinancial penalties may be implied.
The charges for nonpayment and late payment are disclosed in the loan agreement.
Additional actions related to nonpayment’s such as renewals or extensions can be implied upon given consent. The terms of renewal are disclosed in the individual loan application. Additional renewal charges may also apply.
Lenders may perform debt collection practices.
The practices are adjusted as per the Fair Debt Collection Practices Act and any other federal or state laws related to the industry to ensure that the customer or the loan applicant does not end up being a victim of unfair trade practices.
Most of the lenders do not use outside debt-collecting agencies to recover the loans. They use in-house methods to collect the debt from the applicants.
Late payment and nonpayment of the loan might have a negative effect on the credit rating and further decrease the rating.
This may cause them trouble over time. Lenders may report to credit bureaus such as Experian, Equifax, Transunion, etc. In such instances, the late payments and nonpayment’s may be recorded and remain in the records for a certain period.