What is the Annual Percentage Rate?
Annual Percentage Rate (APR)
The Annual Percentage Rate (APR) or effective annual interest rate covers the concept of annual interest costs and consists of fees, fees for the institution, any monthly payments, as well as interest on the loan. Thus, the APR shows the cost of the loan per year. If two loans have the same Annual Percentage Rate, it’s always better to have an Annual Percentage Rate that consists mostly of interest than one that consists of the most fees, since the interest is deducted from your tax amount. In general, the loan with the highest interest rate in annual income will result in a lower annual percentage rate after taxes.
Knowing the Annual Percentage Rate, you will know in advance how much you will actually have to pay for using the loan. Sometimes some credit institutions use a clever advertising move, offering loans at very low interest rates or even the so-called “interest-free loan”. In such cases, you should think about and check what hidden payments and commissions will be indicated in the contract. Most likely, such an “interest-free” loan will cost you more than a regular loan.
The Annual Percentage Rate is the most important factor for assessing the cost of a loan, for this reason, we try to specify the APR for all loan offers, so that it would be easier for you to compare them.
The Annual Percentage Rate can vary greatly depending on what kind of loan you take out. Mortgage will often be relatively low Annual Percentage Rate, while for consumer loans it is higher, and quick loans is the highest. This makes the latter the most expensive loans. When the Annual Percentage Rate is high, it is important to carefully check whether you can afford a loan. You must have considerable financial leeway to be able to pay off a consumer loan with a high Annual Percentage Rate.
Calculating the Annual Percentage Rate is quite complicated. In addition to the nominal interest rate, it depends on the repayment scheme, the number of days in the month taken for calculation, all kinds of commissions for issuing and servicing the loan, the amount of insurance payments, the term of the loan and much more. Therefore, currently all credit institutions are required to specify in the contract the amount of the effective Annual Percentage Rate on the loan.
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