What is an APR rate?

Question

My husband and I have been married for one year and we are working toward our goal of owning our own house. We were told to start to build credit but we aren't sure how to. I was looking into appling for some credit cards but i don't understand what all the rates and percentages are and i don't want to sign into an contract that i don't understand.

Answer 1

So far, everyones answer is JUST ABOUT right. Correct definition, but lacking in a reason.

Annual Percentage Rate (APR) sometimes also called Annual Percentage Yield (APY).

Imagine a simple scenario:
You borrow 100.00 (principle) at a rate of 5% for 1 year.
Using 6th grade (simple interest) math would tell you that you owe 105.00 at the end of the year. But that is simple interest. In the real world they use compound interest.

In other words, the interest added to the original principle also adds interest until the whole thing is paid off.(The interest has interest added too).

In the end, that 5% Annual Rate(APR) works out to really be something like 5.35% (APY) (actual number is different, but you see the effect)

If course, given a choice of what rate to 'accept', when looking at a loan, or credit card, you want to go with the lowest rate. That's why so many places offer loans and so many different rates.

Answer 2

The annual percentage rate (APR) is an interest rate that is different from the note rate. It is commonly used to compare loan programs from different lenders. The Federal Truth in Lending law requires mortgage companies to disclose the APR when they advertise a rate. Typically the APR is found next to the rate.

Example: 30-year fixed 8% 1 point 8.107% APR


The APR does NOT affect your monthly payments. Your monthly payments are a function of the interest rate and the length of the loan.

The APR is a very confusing number! Even mortgage bankers and brokers admit it is confusing. The APR is designed to measure the "true cost of a loan." It creates a level playing field for lenders. It prevents lenders from advertising a low rate and hiding fees.

If life were easy, all you would have to do is compare APRs from the lenders/brokers you are working with, then pick the easiest one and you would have the right loan. Right? Wrong!

Unfortunately, different lenders calculate APRs differently! So a loan with a lower APR is not necessarily a better rate. The best way to compare loans in the author's opinion is to ask lenders to provide you with a good-faith estimate of their costs on the same type of program (e.g. 30-year fixed) at the same interest rate. Then delete all fees that are independent of the loan such as homeowners insurance, title fees, escrow fees, attorney fees, etc. Now add up all the loan fees. The lender that has lower loan fees has a cheaper loan than the lender with higher loan fees.

Answer 3

Annual Percentage Rate....you should look at some of the Federal first time buyer plans. Every state has them....they are for people like yourself that are just getting started and offer some nice advatages like a lower APR and lower starting costs......for CT it was called CHFA....just look up Federal Housing Authority or HUD loans online. Be very leery of credit cards and don't charge too much...you can get yourself into real debt and the interest rates are usually ridiculous.

Answer 4

An APR or annual percentage rate is a numerical figure used to express the cost of credit. It is the yearly amount a consumer must pay for acquiring a loan or other type of credit. By law, lenders are required to fully disclose the APR to consumers.

Answer 5

Annual Percentage Rate
(see source URL below)

Hope that helps!

Answer 6

Annual Percentage Rate and it varies. When you make a mortgage loan, make sure there are no early payoff penalties. And that you can make payments on the actual amount and not just the interest.

Answer 7

Annual percentage rate. The amount a lender can charge you for a loan ofver a 1 year period.

Answer 8

Annual percentage rate, and that is different than the annual yield.