What is the APR?
APR is a tool which can help you to
compare the cost of different loans. When you are looking for a loan
you'll find that you can reduce your interest rate by paying loan-points
up front, but there are also other fees which vary from lender to
lender. The idea is that the APR adds all these fees up and spreads them
out over time to help you figure out which loan really is the best
deal.
For example, which is the cheaper loan? :
A) 5.25% for 2 points
- or -
B) 5.75% for 0 points
Well, if you knew that the APR for loan
(A) was 5.9% and that the APR for loan (B) was 5.8%, then generally (B)
is the cheaper loan.
Generally - the lower the APR, the
cheaper the loan
I say generally because it's
really never that simple, your loan consultant should help you make the
determination. Selecting the best loan for you will depend on many
things including; how long you intend to keep the loan, your tax
bracket, whether or not the loan has a fixed interest rate or is an ARM. |
