This concept applies not only to credit cards, but also to secured or unsecured lines of credit , mortgages , personal loans , and any other type of financial credit.
The APR setting your loans, cards and lines of credit are subject to depends, to a large extent, on your credit report. The higher your credit score, the lower the APR set by the bank, credit union or financial institution; and vice versa. This is because consumers with good credit are perceived as more creditworthy and therefore pose less risk to the bank in the future.
The APR is the acronym for Annual Percentage Rate or, in Spanish, annual percentage rate . This denomination includes the costs to which a loan is subject, be it a line of credit, a credit card or a mortgage . Even auto loans in the United States and the world are subject to APR rates, but how exactly does this percentage work? Is it the same as the interest rate?
Not really, it’s not the same. The APR not only includes the amount that a financial customer -whether an individual or corporate- must pay in interest, but also the fees, collection expenses, rates and fees associated with the credit , among others. While the rate would only reflect what you must pay for interest, the APR includes all expenses.
Let’s see it in an example . If you go to bank A that offers you $ 5,000 at an interest rate of 10%, but you notice that bank B has an offer for loans of $ 5,000 at 8%, you may be tempted to go with bank B. Ultimately , is giving you the opportunity to access the same amount of money at a lower interest rate.
But this is not necessarily the case. To determine which bank offers you the best deal, you must compare APRs, not interest . Bank A’s APR may be lower than Bank B. If you’re only guided by interest, you could miss out on a golden opportunity.