What Is Annual Percentage Rate (APR)? | Financial Terms


APR stands for annual percentage rate, and
it’s really a way of taking a fee that’s associated with a loan and converting it to an interest
rate. So let me explain, because most times when
you’re borrowing, there’s some interest rate and then there’s some fee for the loan that
you’re paying. And you see this all the time with mortgages. But one of the challenging things is it can
often times be hard to compare a mortgage from one place with a mortgage from the other. So let me give you an example. Let’s say I’m borrowing $200,000 for a mortgage
and the interest rate on that mortgage is 5%. The APR would often be above 5% because it’s
expressing the fee I’m paying for the mortgage as an interest rate that I’m paying. So instead of a simple 5%, the APR might be
5.5% because it’s taking the fee and expressing it as an interest rate. Now how does this help you? This helps you because let’s say I’m shopping
for mortgages and one bank tells me they can do 5% and another bank tells me they can do
5.25%, but they each have different fee structures or closing costs associated with them. What I want to know is what is the APR at
Bank A? And let me compare it to the APR at Bank B,
and I want to choose the loan that has the lower APR, assuming all things are considered
equal. So APR allows me to compare what seemed like
apples and oranges in a consistent fashion. And so I can say the APR at one bank is 5.4
and at the other bank it’s 5.25, and it’s showing me all the fees included as expressed
as that interest rate. So I think it’s a really helpful tool, and
it’s also important to note not just what interest rate you’re paying is, but what the
APR is. Because a lot of times people get a loan and
it might have a lower interest rate up front, but the APR might be actually a lot higher,
meaning there are a lot of extra fees that you may not have understood involved in the
loan. So always make sure you compare the APR to
the basic interest rate as a way of seeing how expensive it is to get that loan.

9 comments on “What Is Annual Percentage Rate (APR)? | Financial Terms”

  1. jonald1 says:

    FIRST!!!!

  2. tradecycles says:

    That was very informative. Keep making more on finance, accounts and audits. Also, had there been APR calculation tip, the video would have become complete.

  3. Loser Alex says:

    3 😉

  4. aerickful says:

    So if I get a credit card just to build up credit and always pay on time, does it matter what the apr is? I wouldn't take credit card loans

  5. MzVan21 says:

    how is it related to credit cards?

  6. Ian Armstrong says:

    As clear as mud this video

  7. tobex1991 says:

    thanks. that was soo helpful

  8. petloves1 says:

    so what is an apr violation

  9. Sebastian Schweigert says:

    What's with the shirt?

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