Loans with low APR
APR stands for Annual Percentage Rate. It is the numeric figure that gives you the total interest on the amount of loan that you are taking. It is usually seen in single digits. The APR is the total cost charged by the lender for the services offered. The APR is also called as the cost of the loan. The APR signifies the amount that the borrower is likely to pay annually towards the loan. According to the lending laws all the lenders are required to disclose the APR while promoting their loan offer.
The disclosure of the loan and the cost is called as the Truth according to the Lending Act. This was decided in 1968 according to the consumer protection act and later is was simplified after some modifications. The aim of this act is to make it clear to the borrower the cost of taking the loan so that the borrower can easily compare the offers from various lenders and take the loan that suits them the best.
The lenders however would disclose the APR for the sake of meeting the legal formalities but when the APR is disclosed it makes it difficult for the borrower to find out the total cost of the loan.
The APR is usually used for comparing the loan offers and deciding on the loan that would be best suited for the borrower but it can also be confusing at times. This is because of the fact that the APR is calculated by each lender in a different manner. Hence a loan with a low APR does not typically mean that it is the best offer for you. The lenders would have some sort of flexibility when calculating the APR. the APRs are calculated according to the requirements of the law but they can be estimated to 1/8th of the percentage point on the lower side. Loans that are considered as irregular by the lender the APRs can be underestimated to as much as 1/4th of the percentage point.
There are times when the lender includes a number of hidden fees in
the APR making it more confusing for the borrower to understand. These fees vary from one lender to another and would depend on the type of loan that is being taken. The APR usually includes interest rates, points, processing fees for the loan, private mortgage insurance, underwriting charges, document preparation fees etc. At times the loan application fees and the credit life insurance costs are also inmcluded in the APR.
Getting a loans with low APR would mean a lower annual cost for the borrower. This would mean that the borrower would have to pay a low monthly installment towards the loan. Lenders usually advertise the low APR schemes which can help you to decide on the lenders when taking a loan because at times the rates can be misleading.
The lenders giving the low rate APR calculate the APR with the help of a system called as the risk based pricing. This would mean that the the lnder would assess the financial situation of each borrower and the credit report and then decide as to what should be the interest rate to be offered. If the borrower has a flawless credit history and the financial condition is sopund then he can get a loan with a low APR.
Even though you are taking a loans with low APR you should check if there are any hidden costs that have not been included in the loan APR. One of these costs would be the pre-payment penalty. The pre-payment penalty signifies the amount that you would have to pay in case you pay off the loan earlier than the due date of the loan. The lenders would charge a penalty by charging some amount of percentage of the loan amount.
There are some other factors that should be taken into consideration when filling out a loan application. Make sure you verify with the lender the criteria of acceptance, the redemption penalitis and the price for risk. If you are declined of the loan then it does not matter how cheap the loan is because you would not fit in the acceptance criteria of the lender.
When taking a loans with low APR people usually think that the low APR would be the cheapest poffer for them but this is not the case. When looking for loans with low APR the borrower should compare the cost of different loans before deciding on a particular offer. Justbecause of the fact that the lender advertises for a low cost loan does not mean that you would be getting the cheapest rate on the loan.
Before you decide on the loan with a low APR you should consider the following:
In case the loan with a low rate APR has a pre payment penalty then it is not the lowest rate loan for you. So before you take a loan you should look at the various options as you can look for a good loan that has a slightly higher APR but does not have any pre payment penalties.
When looking for a loans with low APR you should compare the offers from various lenders. It is very important that you make a decision only after calculating the total cost of the loan. People usually do this mistake of comparing just the interest rates but the APR should also be taken into consideration. If you are not sure about making a decision on the loan then you should consult a financial advisor.
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