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Annual Percentage Rate

The APR determines how much you pay monthly on a credit card or loan

By Deneatra Harmon
The APR is the total interest paid divided by the amount of money borrowed. For example, you borrow 15,000 at an APR of 10 percent for one year. Multiplying 15,000 by 0.1 equals the total interest paid, which is $1,500. Divide $1,500 by the original amount of the loan, $15,000, to get the annual percentage rate of 10 percent. Lenders use other criteria, such as the size and financial stability of the business, to decide whether to set a low or high APR.

Furthermore, the annual percentage rate on a credit card determines the interest you pay for maintaining or transferring a balance, or for taking out a cash advance. Some of these credit cards have an annual percentage rate for purchases, one for balance transfers and a late penalty APR. Income and creditworthiness usually determine the credit card amount. When making decisions about applying for credit or loans to start or boost your business, consider these steps:

1. Research annual percentage rate information to help you decide the right loan or credit card.

2. Get help with annual percentage rate facts and figures.

3. Pick a credit card or loan with the best annual percentage rate and reasonable monthly payment.

 

Get annual percentage rate information before making certain financial decisions

Seek information and annual percentage rate advice from publications or organizations that receive annual percentage rate training.
Try: The Federal Reserve Board offers annual percentage rate information and how it applies when determining balances versus minimum payments. Learn the difference between annual percentage rate and annual percentage yield at Investopedia.

Contact an annual percentage rate consultant for help on calculating the numbers

Understand how annual percentage rate calculations work, and receive tips on eliminating debt and managing credit. Certain fees may apply to receive annual percentage rate advice or services.
Try: HM Credit Consulting provides services and resources for figuring the annual percentage rate in order to pick the right credit card, finance a mortgage or to settle on a payment plan. Consolidated Credit Counseling Services educates customers on calculating the APR. Lending Tree is an online financial service that helps consumers use the annual percentage rate to compare mortgage, car, student or business loans.

Choose a loan or credit card with a good APR

Make sure you understand whether the annual percentage rate is fixed, which means that it stays the same, or variable, which means the APR can increase or decrease. A fixed, low APR may be more manageable for your budget.
Try: Bankrate is a good starting point for finding credit cards or loans with a reasonable annual percentage rate. Bankaholic lets you compare the APR of credit cards before selecting one. The site also features information on CDs and money market rates.

 

  • Certain fees apply to the annual percentage rate, particularly for mortgage or commercial loans. These include application fees, points, closing costs, loan origination fees and insurance.
  • As required by law, credit card companies and lenders must state the annual percentage rate in writing so that you know what to expect when you apply for a loan or a line of credit in terms of repayment.

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