Also Readable: Credit Unions, their Membership and Banks
The Battlefield of APR
APR or annual percentage rate is perhaps the most confusing finance term for the most. It is most debated a topic as well. There are endless efforts to explain it. But understanding APR remains a riddle as ever. You also take part in it--- the battle for understanding APR. Finally you assume a metaphysical view---APR is what it is not.
Take a Different Shot
Yes, you have been scared dead when you tried to get knowledgeable about it. You have been conciliated as well. Some say APR matters. Some say APR matters little. Who is right? You think of on your own. BUT when experts disagree on any same topic, you find it hard to reach anywhere. After all, it is an esoteric math.
So what do I have to offer you? Nothing. I have no tips or piece(s) of advice for you. But I would like you to take a trick—take a different shot at it.
APR Matters, APR Matters Not
As I already indicated and you also very well know, there are two schools of opinions in regard to APR. They have always been arguing that APR is the biggest trick lenders play with you. Some say even the lowest APR may have you pay higher than the high APR. Some say the opposite may happen. You cannot decide which way to go—low or high APR. You find it hard to decide if you should go for high interest plus low APR or low interest plus high APR.
Disregard both the schools. It is your requirement for a loan that matters. If you need loans and if your lender demands even high APR, you probably cannot escape it. This is my view. I know I sound irresponsible. Wait till I finish.
You know APR is the additional fees that come annually in grains of percentages with your interest, don’t you? I assume you also know fees for a wide range of services are covered in it. So the prima facie (or declared) interest rate for your loan does not remain what it is supposed to be or initially shown. It goes up as APR gets added to it.
Yes, the fees that are named APR are the root to all trouble. Of course, these charges are often hyper-demanded. But you should take it granted for part of the interest. The good thing for you is to remember your interest rate has two strata—interest rate + APR. It is actually part of your interest. My view is that if my paying back for whatever I borrowed is my interest, my paying back for what I borrowed is also my interest. To put it simply, APR is not beyond your interest. It is only part of it.
So where does the seed of problem lie? It is in the fact that lenders keep it hidden. When you see their ad, you see only the interest rate for your borrowed money (principal). This trick makes it dirty.
However, you will see the APR right across it. Under compulsion of the Truth in Lending law, they publish it there. So it is a lesser deal for those who are careful.
Low Vs High APR
No problem in shrugging off the topic. High is high and low is low. It is that simple. What actually should matter is what type of APR you are incurring yourself into. If it is not variable (does not change), it should fit you. If it is variable, it is certainly going to affect you negatively after the initial repayment period is over. This is where you should be cautiously gazing at.
Weak at Math?
You will have proofs of mathematic argument of both the schools I just mentioned. APR determination is really esoteric-like. And esotericism is not your privilege perhaps. Don’t just get upset. Apply your right. Ask your lender to explain how much the ‘whole’ thing will need you to pay over the term of the loan.
Hope it helps (a little).
(PS: My personal view is reflected in this post.)
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