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When borrowing money, one very common term that you are likely to encounter in search for the lender with the best offer is APR. Also known as Annual Percentage Rate, this is a term that you likely have encountered all the time and this stands for the amount that you’re going to be charged by the lender if you borrowed their money for an entire year. It is only associated with those loans that are going to be taken for a term of at least a year or more. It is not applicable for short-term loans. 

Understanding APR's

APR is how much your borrowing is going to cost you and is the amount that you will need to pay on top of the original amount that you’re borrowing. It is important to understand that there are two APRs that you are likely to encounter when you borrow money. There is the representative APR, which is what lenders advertise to offer to their borrowers. But a representative rate may not always be the same one that they will provide you with when you do apply for a loan. 

Typically, lenders are only required by the law to offer their advertised APR to 51% of their borrowers. So, there is a very good chance that you will get a different deal when you get your loan offer. 

Once lenders receive a loan application, they will review it and assess how affordable the loan is for you and if you have the required credit score to qualify for the amount you intend to take out. Your credit score can play a huge role in what the actual APR is going to be. After the lenders have calculated where you stand as a borrower, expect that the final APR is likely going to be lower or higher than what was advertised.

It does not matter that you have found the lender with the lowest representative APR offer. At the end of the day, you may not likely get the same offer when your loan gets approved. 

Before applying for a loan, you’ll want to know what the rates are first. It would be easier to decide whether a loan is affordable enough for you or not when you know what the costs involved are. 

What You Need To Know About APR in Loans

The Annual Percentage Rate is the total cost for a year of borrowing. Included in the calculation are the interest rates and the standard fees that you’ll be expected to pay. The way interest is calculated would mean that you’ll have the same treatments every month. But you are generally paying more interest at the start of the loan and as the term nears completion, your repayments will have lesser interests included. 

Representative APRs

When you shop around for the right lender that can offer you the most competitive rates, you are usually looking at the representative APR. Whether you’re taking out a loan or a credit card, knowing the APR allows you to get a good idea of what the costs will be when taking advantage of these credit facilities. 

As the name implies though, this is just but a representative of the likely rate the lenders will offer to you if you are to apply for their loans. But it doesn’t always mean that this will be the same rate you’ll get though. Depending on your circumstances, lenders may offer you a lower or higher APR. 

Personal APR

This is the actual loan rate that you will get once you get approved for a loan. Your personal and financial circumstances play a huge role in determining what your personal APR is. Lenders will also look into your credit history and how good or bad were you at managing your past debts too. 

You will likely not know what your personal APR is though until you have actually applied for a loan. You might want to get a soft quote from prospective lenders ahead of time to get a better idea of what they will have in store for you. Just avoid sending in an actual application just to know what the APR offer is because this will just end up ruining your credit rating as a result. 

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