It is an aspect that many overlook when searching for credit. Namely, how much extra will they have to pay back. And key tot his is not just the repayment period but the interest rate attached to the loan. Many do not understand the true intricacies of these added charges, so here is the lowdown on interest rates.
APR
So, what exactly is APR? Annual Percentage Rate (APR) is the abbreviation for Annual Percentage Rate. It’s a computation of how much interest and other fees (such as a mortgage arrangement fee or a credit card annual fee) you’ll pay each year on top of the amount you borrowed.
The annual percentage rate (APR) is the cost of borrowing over a year. By law, all lenders must disclose their annual percentage rate (APR), which varies from one lender to the next.
The Lowdown On Interest Rates- Representative APR
When a Representative APR is presented alongside some types of borrowing (credit cards, personal loans), it signifies that 51% of those who are approved will be granted the specified rate.
However, the remaining 49% of applicants may receive a separate, typically higher, rate. Some applications will be outright denied. Who gets the advertised Representative Rate will be determined by their credit score and financial situation.
Get The Best Rates
Because you might not get the quoted Annual Percentage Rate in some circumstances. It’s Representative APR all over again. It may appear appealing, but you may not be able to obtain it, especially if your credit score is less than ideal.
Unfortunately, you won’t know what rate you’re getting until after you’ve applied (and left a ‘footprint’ on your credit history).
This is especially true with credit cards, so check the APR on the final documentation carefully. Keep in mind that a lower credit score means a higher APR.
The Lowdown On Interest Rates – Avoid Monthly Interest
Some banks and credit card firms advertise extremely low monthly interest rates, such as 2%. Doesn’t it sound appealing? When you double that monthly interest by a year, you get an astronomical APR of 26.8 percent.
This is the rate you will be charged. So, at this rate, your £1000 would be worth £1268 if you paid it back over a year. Isn’t it no longer so small?
And Variable Rates Too
A low APR rate on a credit card or loan can entice you in. However, if the loan has a VARIABLE rate, the APR may increase dramatically once the promotional period finishes.
So, if at all possible, try to find a stable rate. It may have a higher APR, but you’ll know exactly how much you’ll pay in the long term.
Balance Transfer Cards
Okay, you’ve done an incredible job. Your previous debt has been transferred to a credit card with a 0% APR on balance transfers.
You’ve put up a payment plan to pay off this debt before the 0% interest rate deal expires. You have a great deal of common sense.
Then you have a stroke of brilliance and use your balance transfer card to make a single transaction without paying it off. Disaster.
On new purchases, you will be charged upwards of 27 percent APR, not the 0% APR. It’s the way they entice you in. CUT UP THAT CARD AFTER YOU’VE TRANSFERRED YOUR BALANCE AND SET UP YOUR PAYMENT SYSTEM!
A Simple Solution – Pay Off Your Card(s)
You can completely ignore APR if you pay off your entire credit card debt each month. You will only be charged interest on debt that is accruing, so if you pay off your entire total each month, you will not be charged interest. This is smart borrowing, and it will keep you out of debt.
Always keep in mind that the longer you borrow, the larger your debt will become. Interest will be levied if you skip a payment or only pay the minimum amount due on your debt. As a result, pay it off every month.
