answersLogoWhite

0


Best Answer

Annual percentage rate, commonly referred to as APR, is what creditors charge consumers in order to allow them to make installment payments on rather large purchases, such as cars and homes. Loan types, credit score, report, and history, can all have effects on what APR you can get for a loan. The annual percentage rate (APR) is an interest rate that is different from the note rate. It is commonly used to compare loan programs from different lenders. The Federal Truth in Lending law requires mortgage companies to disclose the APR when they advertise a rate. Typically the APR is found next to the note rate. APR does NOT affect your monthly payments. Your monthly payments are a function of the interest rate and the length of the loan. APR is a very confusing number! Even mortgage bankers and brokers admit it is confusing. The APR is designed to measure the "true cost of a loan." It is supposed to create a level playing field for lender by preventing them from advertising a low rate by hiding fees. Unfortunately, different lenders calculate APRs differently! So a loan with a lower APR does not necessarily translate to a better rate. The following fees ARE generally included in the APR: * Points - both discount points and origination points * Pre-paid interest. The interest paid from the date the loan closes to the end of the month. Most mortgage companies assume 15 days of interest in their calculations. However, companies may use any number between 1 and 30! * Loan-processing fee * Underwriting fee * Document-preparation fee * Private mortgage-insurance The following fees are SOMETIMES included in the APR: * Loan-application fee * Credit life insurance (insurance that pays off the mortgage in the event of a borrowers death) The following fees are normally NOT included in the APR: * Title or abstract fee * Escrow fee * Attorney fee * Notary fee * Document preparation (charged by the closing agent) * Home-inspection fees * Recording fee * Transfer taxes * Credit report * Appraisal fee Calculating APR on adjustable and balloon loans is even more complex because future rates are unknown. The result is even more confusion about how lenders calculate APR. Do not attempt to compare a 30-year loan with a 15-year loan using their respective APRs. A 15-year loan may have a lower interest rate, but could have a higher APR, since the loan fees are amortized over a shorter period of time. Finally, many lenders do not even know what they include in their APR because they compute it using a software program. It is quite possible that the same lender with the same fees using two different software programs may arrive at two different APR values! Yup - clear as mud.

User Avatar

Wiki User

โˆ™ 2007-02-27 21:49:42
This answer is:
User Avatar
Study guides

What is rhetorical device

Who was the father of rationalism

What is a cash advance

What is discretionary spending within a budget

โžก๏ธ
See all cards
2.11
โ˜†โ˜…โ˜†โ˜…โ˜†โ˜…โ˜†โ˜…โ˜†โ˜…
9 Reviews

Add your answer:

Earn +20 pts
Q: What does the term annual percentage rate mean for a loan?
Write your answer...
Submit
Still have questions?
magnify glass
imp
Related questions

How the annual percentage rate measures the true cost of a loan?

how the annual percentage rate measures the true cost of a loan


What is apr mean?

Annual Percentage Rate. Refers to the Interest rate paid on a car loan.


When pertaining to financial loan what does APR stand for?

Annual Percentage Rate (of the interest rate)


What a loan is What interest is And how the annual percentage rate measures the true cost of a loan?

What a loan is: A sum of money lent at interest.What interest is: A charge for a loan, usually a percentage of the amount loaned.And how the annual percentage rate measures the true cost of a loan? Annual percentage rate, commonly referred to as APR, is what creditors charge consumers in order to allow them to make installment payments on rather large purchases, such as What_does_the_term_annual_percentage_rate_mean_for_a_loanand homes. Loan types, credit score, report, and history, can all have effects on what APR you can get for a loan.


What is calculated by using a standard formula to show the cost of a loan?

annual percentage rate


What do the abbreviations of APR mean?

Annual Percentage Rate


What does typical APR mean?

Annual Percentage Rate


How does one calculate the interest rate on a loan?

Calculating the interest rate on a loan isn't that difficult. A person will need to take the principal amount and multiply it by the term of the loan and the annual percentage rate.


What does the abbreviation APR mean when looking for a cheaper loan?

In reference to finance, APR is the acronym for Annual Percentage Rate. The APR is essentially the annual cost of the credit a person will be receiving.


What is used to calculate by using standard formula to show the cost of a loan?

annual percentage rate


How do you get your pulse rate down?

Our soft calculator accepts:&Loan amount: The total amount of money that you have borrowed.&Percentage of Down Payment&Loan term: The number of years you have to pay off your loan.&Annual Interest Rate: The exact interest rate on yourdgdgfds loan. This is deferent from the annual percentage rate or APR which is standardized method of calculating the cost of a loan, stated as a yearly rate which includes such items as interest, loan insurance, and certain points or credit costs.


Is the annual percentage rate usually lower than the actual interest rate on the loan?

The actual interest rate on a mortgage will always be higher than the annual percentage rate unless the borrower keeps the loan for the full term. Refinancing or selling before the end of the term results in a much higher actual (effective) interest rate. The effective rate on a mortgage can be lower than the annual percentage rate (fixed rate) by paying extra to principal especially early in the mortgage term.

People also asked