Pay low monthly installments with a cheap APR loan
An APR means Annual Percentage Rate is a numerical
figure usually in single digit which is used to express
the total interest, i.e. amount over and above the principal
amount, which is charged by the lender as a charge for
offering lending service. It is also called the cost
of loan. It is the yearly amount a consumer must pay
for acquiring a loan or other type of credit. Lending
law requires that all lender clearly disclose the APR
in all promotional material through which lenders seek
clients.
This loan and cost disclosure is called the
Truth in Lending Act. It was legislated in 1968 as a
part of consumer protection act. Subsequently, it was
revised and made simplified. The basic goal of this
act was to express clearly to consumer the cost of availing
loan so that the prospective borrower can compare and
go for a loan which is most suitable for him.
However, though lenders disclose APR only for the sake of fulfilling a legal formality. At time the method of expressing APR makes it difficult for consumers to find out actual cost.
Though APRs is used to compare loans and determine the least expensive credit products, APR is also confusing at time. Because each lender may calculate APRs in a different way. Therefore, a loan with a lower APR may not necessarily be less costly than one with a higher APR. Lenders have some flexibility when it comes to calculating APRs. Along with fulfilling the requirements of law, they can underestimate the annual percentage rate of a loan by as much as 1/8 of a percentage point. For loans that are considered irregular, lenders may underestimate APRs by as much as 1/4 of a percentage point.
At time, various hidden fees are included in an APR to make APR more confusing. Such fees vary and depend upon the loan, credit product obtained. Points; prepaid interest; private mortgage insurance; and fees for loan processing, document preparation, and underwriting are commonly included in an APR. Sometimes loan application fees and credit-life insurance costs are included as well.
Cheap APR Loan
As the acronym APR itself describes, cheap APR means
cheap or low annual percentage rate or lower annual
cost to for the borrower. This low APR translates into
lower installments for the borrower. Usually, lenders
advertise their low APR schemes, which can be useful
for you but be careful while choosing any lender because
at time rates may be deceptive.
Cheap loan lenders calculate their APR through a system called risk based pricing. This means that they assess each individual's circumstances and credit record before deciding what rate to be offered. If the profile of the borrower is excellent and has a record of timely payments, he will be offered a low APR.
However, you must see if any hidden cost is included
in the cheap loan which is not being reflected or is
not in your knowledge. One such example is prepayment
penalty, which means if you clear off your debt before
the decided period; lenders charge a penalty in terms
of certain percentage of the loan amount.
However, there are other factors to consider when making
a loan application, such as acceptance criteria, price
for risk and redemption penalties. It doesn't matter
how cheap a loan is if your application is declined
because you don't fit the lender's criteria.
Is a low APR always cheaper
‘NO’, you must compare the cost of different
loan offers before deciding any particular offer. Just
because a loan has a low APR or lower monthly payments
it doesn't mean that it's the cheapest or best loan
for you.
Before taking final decision, consider few common aspects, which are:
If a lower APR loan comes with pre payment penalty, it may not actually be a lower APR loan. So weigh up your options as you may find it better to opt for a slightly higher APR with no early settlement charge, than a lower APR with a penalty for paying off the loan before the end of the term.
At time, cost of payment protection insurance and benefits
offered by it varies from lender to lender, which add
to cost to the total loan. In this case, even if you
get a lower APR, total cost may actually be more than
what is visible to eyes.
