Your Quick Primer on Annual Percentage Rate (APR)

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Today's the day you need a loan. Maybe it's so that you can finance a new car, or maybe you need one to help repair an old beater. Whatever its use, a loan comes with certain responsibilities. You need to make sure you can pay back what you borrow. 

A lot goes into deciding whether a loan is right for you, and one of those things is APR. Standing for Annual Percentage Rate, it helps you understand the true cost of borrowing. 

It doesn't matter if you've borrowed all your life or you're a first-time borrower-everyone could stand to learn more about APR. So, keep scrolling - below, you'll find out what APR is, how it's calculated, and why it holds significance in your financial decision-making process.

What is APR?

The Annual Percentage Rate represents the total cost of borrowing over a year, expressed as a percentage. It's much more than just the interest rate charged on a loan or credit card. It also includes any additional fees applied by your lender. 

In a nutshell, APR provides a comprehensive picture of the overall cost of borrowing, giving you a chance to make an informed decision.

How is APR Calculated?

To calculate APR, you must know several details about your loan:

● The interest rate

● Applicable fees and charges (these could include origination fees, closing costs, annual fees, etc.)

● Your principal

● The duration of your loan

From there, it's simply about plugging in these details into an equation.

1. You'll want to combine your interest and fees, dividing that sum by your principal.

2. Take that quotient and divide it by the duration of your loan.

3. Multiply this figure by 365.

4. Finally, multiply that product by 100.

A legitimate loan company like MoneyKey will do this calculation for you and share your APR, but it's good to know how to crunch the numbers for yourself. You can keep this in mind if you decide to explore the financial options from MoneyKey online. 

Why is APR Important?

APR tells you a lot about a loan and its costs, so you don't want to overlook this number. It helps you make a shrewd assessment of your options. 

Affordability

First and foremost, it helps you determine the affordability of your loan. By factoring in every charge related to your loan, you have a better idea of its cost than if you looked at interest alone.

Comparison Shopping

MoneyKey proudly joins a long list of financial institutions that provide transparent APR information. This means you can make a quick comparison between lenders to see how APRs differ. This comparison is invaluable when you're deciding between two (or more) products, as you can choose the most cost-effective option. 

Regulator Compliance

By law, lenders must share APR, so it's a green flag when you see it listed. Don't ignore the red flag of an omitted APR. It means they are breaking the law and concealing the true cost of their loans online. 

Now You Know the ABCs of APR

APR, or Annual Percentage Rate, is a key component when comparing the costs of loans, credit cards, and other financial products. So, remember to always examine the APR when evaluating borrowing options, and use it as a tool to ensure transparency and make well-informed financial choices.