In Plain English What’s An APR?
Chances are you’ve heard the term “APR” on credit card commercials, but tons of Americans have no idea what it actually means. So before you refinance mortgage rates or apply for home mortgage interest rates to purchase a home, you should understand what this term really means.
APR — Annual Percentage Rate
An Annual Percentage Rate is the total interest rate in a one year period. There’s also the Effective Annual Percentage Rate, which represents a year’s worth of compound interest plus fees. Essentially, the APR was designed to give home buyers and other loan applicants information on their total annual costs. If you want to refinance mortgage rates or apply for some other type of loan, then the APR will be used to calculate the best interest rates available to you.
Ideally, the APR gives consumers information on what they will really end up paying every year.
So the APR protects U.S. consumers from fraud and deceptive lending?
In a perfect world, absolutely. Unfortunately, we don’t live in that world. The disclosure of APR is regulated by the “Truth in Lending Act,” and you don’t pass legislation called the “Truth in Lending Act” because big banks are known for their honesty.
Even so, U.S. consumers hoping to refinance mortgage rates or secure a home equity loan usually receive more honest APR information than other types of loan applicants. Credit card companies and auto makers in particular have been criticized for deceptive APR disclosures.
So the APR includes all closing costs and fees?
Well, it should. That’s what it’s there for, anyway. Unfortunately, sometimes lenders or other home sellers will try and sneak additional closing costs and fees past you. What kind of hidden fees should you be on the lookout for? First, don’t forget to ask about penalty fees, such as late fees or other types of charges. And second, fees paid to other agents besides the lender may not be included in the APR, even though they are effectively part of your closing costs.
What else effects my interest rates?
If you want to refinance mortgage rates, then the amount left you owe on the loan will be a major deciding factor in the financial institution’s decision. And whenever you’re applying for a loan or credit card, of any kind, your credit score will also be factored into the calculation.
If you hear terms like APR or other financial jargon, please don’t be afraid to ask for more information. If your bank doesn’t want to help you understand, then you need to find a bank that is willing to help.
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