how does 1% apr loan works? and for how long?

Answer 1

Be very very very very careful with these sorts of loans. Most of the time this is either a teaser rate for about 1-3 months and then it becomes monthly adjustable. Or even worse it is a negative amortization loan, that is a higher rate from day one, but your payment is such as if it was 1% APR. The unpaid interest simply get shoved into your principal.
Do not go for these sorts of loans. I am a loan officer with many years of experience, I never sell this sort of loans to my clients, but there is a lot of loan officers that don't care and will sell you anything to get you hooked.
It is very common for these sorts of loans to carry a hefty pre-payment penalty. So once you sign up for it, you can't easily refinance it. My advice -- stay away from it.
The banks have to borrow money today at about 6.5% from the federal reserve, they pay 5% rate on saving account, but they will take that money and lend it to you at 1%? Sounds too good to be true? That's because it is a trap.


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EDIT: I should have asked what kind of loan that is, if this is a car loan then it is different, they are actually 1% APR, however in many cases that 1% is offered in lieu of some sort of rebate, so you need to see if you may be better off getting a loan at a regular rate and taking advantage of other incentives.

Answer 2

First mistake: This is NOT 1% APR. NOT 1% APR.

You might start out paying your loan as if it were really at 1%, but your actual interest rate is likely to be 6.5-8.5%.

So the APR is more likely to be 7.5%.

So, your real interest rate is 7.5%. You make payments as if it were 1%. Your payments will not be enough to pay for the interest you've been charged at 7.5%. So, your mortgage balance will be increased every month by however much interest you did not pay.

These loans can be quite dangerous for many people, and most importantly, they are at a much higher rate than most normal loans are.

And most loan officers who sell this product lie like crazy, or don't answer your questions fully, so you end up confused, like you seem to be right now.

In my personal experience, 99% of people who are offered these types of option ARMs refuse to take them when they are properly and fully informed of how these loans work, and the risks involved in taking them. I literally do maybe 1 option ARM per year, and those are extreme cases. Everyone else runs like hell in the other direction when they realize that you might borrow $200,000 today, and in 5 years you actually owe $230,000. This is exactly what happens on these loans.

Good luck.

Answer 3

the APR is the rate charged as the beneficial loan amount. in other words if there are no cost in setting up or doing the loan then you have a 1% nominal rate and the same APR. so you need to know the amount of the loan and the term in order to give a proper answer.
eg 1000 borrowed at 1% for 5 years = a payment of $17.09 monthly