InvestorQ : How can knowing my annual percentage rate (APR) help me save money?
Abigail Ghoshal made post

How can knowing my annual percentage rate (APR) help me save money?

Suresh Patil answered.
3 years ago

When we go to get a loan, the most important question that is in our minds is that of the interest rate and how much we will be charged for the loan we are taking. While we do compare interest rates of all banks and NBFCs, we often fail to check the APRs on these loans.

APR, or annual percentage rate, is different from interest rate as it is the amount you have to pay, which includes the nominal interest rate, processing fees, penalties and all other charges that are applicable to the loan. Hence, it is usually higher than the nominal interest rate.

Thus, APR is the actual amount that you will be paying towards your loan and not just the interest rate. Because most of us are only interested in the interest rate that will be charged to us, we often fail to assess the best loan for ourselves and end up taking a loan which costs a lot until the end of the year.

In APR, however, you can calculate the actual rate of interest including all the charges levied by the lender on the borrower. As this is the actual amount you will end up paying towards your loan, it is only logical that you compare this amount when weighing your options.

It is through APR that you will be aware of the various charges the lender is levying upon you. Once you are aware of the charges, you can try and negotiate a better deal with your lender.

Do note though that although the APR is a vital aspect of a loan, most lenders will not give you a clear idea of it to you. The reason for this is that upon giving the APR, the actual cost of a loan, a borrower might change his/her decision of availing a loan from the said lender. However, you must take it up on yourself to know the APRs of all the lenders you are considering and then make an informed decision for yourself.