What is an APR?
What is APR? You may have found yourself asking this question a number of times and now that you’ve finally decided to look it up online, here’s a little help. APR is nothing but the Annual Percentage Rate. If you’ve been trying to find a way to understand or study your credit card statement or have been looking for a loan to buy a car, either way, understanding what APR is can help you manage your finances a lot better.
Types of APR
There are many reasons you could be confused about APR, one being, the different kinds available today. Did you know that a credit card account could have more than one APR? While you may pay close attention to the APR through a purchase, there’s one more thing you need to keep in mind. If your balance from one month gets transferred to the next, the rate amounted in the process would be used to calculate how your balance is impacted.
Also, consider that there are different types of APR, including one associated with a bank transfer. If you transfer your money from one credit card to another, this rate would eventually come into play.
Even while this may add to your confusion, it is best that you keep yourself updated with maximum knowledge. When you approach a lender, chances are that you may be offered a promotional APR. After a certain period of time, this APR offer could lower your rate on specific transactions. Let’s say as an example that you come across a lender offering 0% APR for a total of six months. Now, what happens when this promotional period ends? The APR would, unfortunately, transfer to a higher amount and would eventually increase the price of carrying that specific balance.
Non-Variable and Variable APRs
A non-variable APR works differently from a variable APR. While a non-variable APR is often preferred by many, the rates associated with it usually stay the same. When you opt for this APR, you can be sure beforehand of what to expect in the future, which would mean fewer surprises down the road. You may want to pay special attention to the fine print that tags along with every car loan. Most of these offers aren’t always guaranteed so make sure to check up on this bit.
A variable APR, on the other hand, would vary from time to time. The variable APR is calculated by merging the margin usually set by the lending services toward the reference rate, such as the prime rate. However, you will see an increase in your APR if the prime rate increases and vice versa. You may want the prime rate to decrease as it will be the only way for you to get an affordable loan. For those of you who don’t know what a prime rate is, it is the interest rate that is usually determined by one’s bank and is often used as a base rate for different loans.
In all, make sure that you understand what you’re getting into. If possible, research before making a decision.