APR -- What Does it Mean

APR -- what does it mean?

APR – What does it mean?

APR stands for Annual Percentage Rate. A common misconception is that APR is just the same as the basic interest rate; however, this is not the case. Part of the reason for this misconception is that the APR is actually the figure which one should be interested in when taking out a loan, a mortgage or getting a new credit card, rather than the basic interest rate.

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So, APR – what does it mean?

The APR is the basic interest rate, plus additional fees and charges which may be applicable. The APR describes the interest rate for a whole year, rather than month by month. The APR takes into account fees which may be applicable in different situations. For example, a bank may charge you a fee when a financial deal is signed or when you go over your limit.

Therefore, the basic interest rate in many cases may actually be rather misleading. If you focus on the APR, you will have a more realistic view on what you are actually required to pay to the bank. However, this does not mean that there may not be extra costs which are not included in the APR. For example, there may be arrangement fees for a mortgage deal which are not included in the percentage and which mean that it may be difficult to ascertain which, out of two deals from different banks, is the best one, all things considered.

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The APR can be fixed or variable. If it is fixed, this means that the fees will not change from month to month, except for under exceptional circumstances. However, if it is a variable APR then the amount can change from day to day, as the APR is based on an interest rate such as the Prime Rate, which is based on the amount charged by the bank to their most loyal customers, such as corporations or conglomerates.

Thus, it is important to understand the fine print of your deal with a particular bank, which should be outlined in detail in the cardholder agreement or the equivalent.

One would assume that the lowest APR is the best deal. However, this is not always the case. There are many different fees and charges which must be taken into consideration when taking out a loan, mortgage or credit card, and this is not always made clear. Therefore, the different scenarios which can occur given seemingly similar deals are startling.

As such, it is extremely important to work out exactly what each bank is offering you, taking into account the different fees which may be charged to you, before you make a decision as to which APR is the best.

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