When a headline interest rate might be misleading. What to look out for and how to find out the real cost of a loan.
Youre looking for a loan. You want the best value. Best value means lowest APR. Right? Only partly. The annual percentage rate tells you what youll pay to the lender every year, and by law this figure must include all charges included in the package. So if theres an annual fee, for example, payable each 12-month period during which you owe money to the lender, this would have to be included in the APR, as would any set-up fee. In other words, the interest rate and the APR are two different amounts, unless there are absolutely no charges. However, as the APR includes the interest rate, it cannot be lower. APR can be used as a basic way of comparing one loan with another, and is required by law to be used in advertisements for all loans.
So thats the basics. But of course, if we used only the APR to determine which loan to take out, wed all use the same loan the cheapest. Since that doesnt happen, there must be other factors. Not covered by APR disclosure regulations are the various charges that are added to loans on a voluntary or penal basis. Its...
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