Understanding APR

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Understanding APRAPR, short for Annual Percentage rate, is a very quick way to understand how much financing or a loan is going to cost you over time. Understanding the importance of APR is a good way to know whether or not a loan is a good idea, and can help you save more money in the long run.

What is APR?

A common misconception is that the APR is just interested, but calculated on a yearly basis. Interest is included but when looking at your APR there are also fees and costs related to the loan shown in the percentage, this may include things like documentation and underwriting fees. These fees and costs will vary depending on the type of product financing or loan you’re applying for. You can think of APR as the cost of borrowing the money.
It is also important to understand what part creditworthiness plays in how APR is calculated or determined for anyone applying for credit.

Should I Always Go with the Lowest APR Option?

Under normal circumstances, a lower APR is better, but not always. A great example of when a lower APR might not be your best bet is if it is a variable APR, where in the beginning the interest is much lower and can change over time. Be sure to ask questions about the loan to ensure you have a complete understanding of how the APR can change.

What’s the Difference Between A Variable APR and A Non-Variable APR?

A variable APR is calculated by using a base rate and adding a margin (a certain percentage) to that base. A non-variable APR doesn’t use a reference rate, instead, it’s a rate determined by your lender. Understand that a non-variable rate can sometimes still change if things like you’re late on your payment or stop paying completely. Be sure to completely understand the terms and conditions of your loan so you know if and when a non-variable rate can change.

When applying for a loan or credit card understanding APR is an important part of knowing whether or not the terms for repayment will work for you. Not sure what option is a good fit for you or just have questions about our borrowing options? Contact a Camino Member Advisor at 800-835-3400 or stop by a branch. We are here to help you on your financial journey.