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WHAT DOES APR MEAN? All personal loans have APRs associated with them. APR, also known as Annual Percentage Rate, directly influences how much you are going to pay in costs for your loan. Understanding how APR is computed can be difficult. Below, we outline what APR is and how it effects any loan product.
APR is divided into two categories: nominal APR and
effective APR. The fee plus compound
interest rate
calculated for a year is called effective APR, also known as
EAR. The effective APR is the more practical of the two. How
EAR is computed is also going to depend on the start-up
costs or fees of the loans. If these costs are rolled into
the loan, then the balance will clearly accumulate
additional interest. Auto loans are the most common type of
loans when lenders will roll all loan costs (i.e. tax and
registration, title and registration) into the final loan
total. Applicants that pay all of these loan origination
fees upfront will save money, particularly those that can
only achieve approval for loans with
higher interest rates.
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