Are you planning to apply for a personal loan to buy your dream house or car? Wait, hold up! Between getting your loan and evaluating different offers available with it, it is easy to overlook many other fees that get tacked along with your personal loan. Before you sign any personal loan agreement, make sure you do your homework to find out the exact fees you will be paying, and for this, you need to understand two major factors in repayment of the loan that are interest rate and annual percentage rate or APR.
While most of the time we look for the personal loans with the lowest interest rates, however, there is another thing you need to look for, and that is APR. Both APR and interest rates determine how much you will pay on the life of your loan, so it is necessary to understand them and the significant difference between them.
Worry not; we will break down both interest loans and APR, and what is the difference between them, so you can get the best rates possible when you take out a personal loan.
What is the interest rate, and how to get the lower interest rate?
If you are taking out a personal loan, there is an amount of interest lenders charges on the loan, which is applied to your remaining monthly income; each month, a part of your salary gets used to the balance you owe. The interest rate on a personal loan can be fixed or variable, depending on the type of loan you have applied for.
Also, when you are planning to take out a personal loan make sure to check your credit profile. The interest rate can be higher or lower according to your credit score; the higher the credit score is, the lower the interest rate on the personal loan you are taking.
What is the APR on a personal loan, and is it the same as the interest rate?
With interest rate and annual percentage rate or APR used very often interchangeably, it is easy to confuse APR with the interest rate. However, APR is different from the interest rate. The annual percentage rate or APR is the total cost you need to pay and includes both interest rates and other fees charged by the lenders. These fees can consist of organization fees that your lender may charge for processing your application, and if there are no extra fees, which is highly unlikely, then APR and interest rate would be the same.
Is interest rate and APR different from each other? If yes, then how?
Yes, it is easy to confuse APR with the interest rate, but, remember, both APR and interest rates are slightly different from each other. While the interest rate is charged on your personal loan, APR is the amount lenders charge as an organization or other additional fees charged on your application. According to your credit score, the interest rate can be higher or lower while the lenders usually decide the APR irrespective of your credit score. Only when the lender charges no extra fees, the APR is equal to the interest rate on the personal loan.
Is no-APR personal loan beneficial or not?
Though many lenders do not charge APR on the personal loan, it is not always equal to the lower costs; many lenders charge higher interest rates on the no-fees personal loan. But, the same can vary from lender to lender, so it is recommended to do research and go through the documents properly to get the best offer and low interest personal loans.
Things to look out for while taking a personal loan!
While taking a personal loan make sure you watch out for the lender that does not put a hefty price tacked to your personal loan. There are plenty of lenders out there, so make sure you do your homework properly. Do your research, compare and then decide which option is best for you.
Taking out a personal loan may seem like a whirlwind but take your time out to compare and read the terms of your loan to get the best offers and deals on your personal loan.
If you want to save hundreds or thousands over the term of your loan, knowing the difference between APR and interest rate can help you a lot. Now you know whether APR or interest rate is the same or not, so make sure to check these both out while taking out a personal loan.
