Finances & Money

Using APRs for Loan Shopping in Las Vegas

One in every five millennials is ready to take on a personal loan, according to an article on Market Watch. While they might have a credit score high enough to get loans at perfect rates, not everyone who is interested in a loan is savvy in shopping for one. In most cases, people rely on interest rates to determine which las vegas signature loan is cheaper than the rest

 

 

 

 

However, the truth is that the interest rate provided by lenders is not the entire cost that you will incur for the loan. Instead, financially savvy loan shoppers should switch to using the annual percentage rates (APRs) for loan shopping.

Here are some few details about APRs and how they can help you with shopping for the perfect loan:

What is APR?

APR is simply the true cost of a loan over a year. Lenders will typically need to add an interest rate to the principal amount to cover for the risk that the borrower might default on the loan. While this interest stands for the profit that the loan will give lenders over time, it doesn’t necessarily include the extra costs for approving the loan.

For instance, some borrowers will include an origination fee in their lending policies. As a result, shopping while only considering the loan interest might lead to paying more for the loan than expected. There are typically two types of APRs to choose from – variable and fixed APR.

 

Variable vs. Fixed APR

The difference between variable and fixed APR is quite easy: while variable APR can change from time to time, fixed APR remains the same throughout the lifetime of the loan. In case the lender wishes to make any changes to the loan rate, they will first have to notify you as the borrower, and your payments will remain the same until the new changes apply. As for variable APR, a lender can change their rates at any time without notifying you.

This change will typically be influenced by the benchmark interest rate and among other economic factors. While the fixed option offers you the relief of paying down your loan at the same rate throughout its lifetime, the variable option offers the benefit of lower payments if the interest rates were to drop. However, an increase in interest rates will only mean larger payments for you in case you rely on the latter policy.

How is APR determined?

The specific determinants of APR vary from lender to lender, but the constant factors that they look into are the credit score and report of the borrower. As mentioned above, lenders use the profit they get from the loan to safeguard themselves from the probability that you might default on the loan. As a result, you will have a high APR in case you have a low credit score.

Having a high credit score, on the other hand, will portray you as a less risky borrower, which will earn you a low APR. This means that working to build your credit score could mean reduced loan repayment, not to mention a better chance of landing the loan itself.

Using APR for Comparison Shopping

Thanks to the truth in lending act, you can get to see the full picture of your loan costs as lenders are required to be up front on all costs involved. This allows you to compare the actual price of any two loans. While a loan might have a 6% interest, its APR might be at 8%, making it more expensive than a loan whose interest and APR are similar and at 7%.

Since lower loan terms mean higher payments for the loan, you should also compare what any two loan options would cost were you to shorten the loan period. Surprisingly enough, the previously cheaper loan might turn out to be more expensive. In a nutshell, doing some math will help you make a favorable choice.

Conclusion

When applying for personal loans, you have more than one option to choose from. This makes it easier to find a loan that has the right price tag for your situation. Feel free to do some comparison shopping to pay a favorable APR.

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Susan Paige

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