What is the difference between APR and Interest Rate on a Car Loan?
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Absolutely nothing. They're both ways of describing the same thing: the interest rate on the loan. APR stands for Annual Percentage Rate, which is the interest rate on the loan.
So APR = Interest Rate.
What is the difference between APR and Interest Rate on a Car Loan?Uh, they're the SAME thing.
What is the difference between APR and Interest Rate on a Car Loan?There are several ways that interest use to be figured. Forty years ago the rate was an add on rate. If you were quoted a 6% rate on a five year loan your interest was 6%*5*the amount of the loan. Or $300 per $1,000. Than there was simple interest. Forty years ago simple interest on a five year $1,000 loan was $159.97. The interest was charged on the declining balance. This was confusing for borrowers. So APR became the way that all loans are quoted Using the examples above the APR for the add on rate is 10.85% and for the simple rate it is 6.00% (assuming no loan fees).
Now APR is to including loan fees. So the APR on your auto loan will be the simple interest rate plus the spread of any loan fee over the life of the loan. If your bank charges you $25 to make a loan plus interest at 6% your APR on the $1,000 loan above would be 6.50%, while your rate is still 6.00%.
Banks and finance companies are legally required to quote the APR of their loans. The reason for this is that it allows the consumer to compare true costs of the loan. For an example a loan with a rate of 6.15% with no fees will cost you less than a loan with a rate of 6.00% and a $25 fee (per thousand).
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