Annual Percentage Rate (APR)

The annual percentage rate (APR) refers to the cost of borrowing for a car purchase or a car loan. Expressed as a yearly percentage rate, the APR includes the interest rate and any additional fees or charges associated with the loan. Using the APR, consumers can compare the cost of different auto loans and make an informed decision about which loan to choose.


How is APR different from the interest rate? Interest rate is the percentage of a loan that a lender charges for the use of its money. APR includes the interest rate as well as any additional fees or charges, such as origination fees, to give a more accurate picture of the total cost of borrowing. The APR is higher compared to the interest rate.

Is APR the only factor to consider when choosing a loan? No, APR is just one factor to consider when choosing a loan. Other important factors to consider include the loan term, fees, and the overall creditworthiness of the borrower.

How does APR affect my loan? A higher APR means that the total cost of borrowing will be higher, while a lower APR means that the total cost of borrowing will be lower. Additionally, it will also affect the monthly payment of the loan, the higher the APR the higher the monthly payment will be. Therefore, it’s important to compare the APR offered by different lenders to find the one that will result in the lowest total cost of the car.

Are all APRs the same for all types of loans? No, different types of loans may have different APRs depending on the lender, loan terms, and other factors. APRs can also vary depending on the lender. For example, a bank may offer a different APR than a credit union or an online lender for the same loan product. It is important for borrowers to compare the APRs offered by different lenders to determine which loan is the most cost-effective.

How is APR calculated? APR is calculated by taking the interest rate, adding any fees and charges, and expressing the total as a yearly rate. The APR on a car loan is typically calculated by the lender, such as a bank or finance company. Lenders will use various factors such as credit score, income, debt-to-income ratio, loan amount, and loan term to determine the APR for a car loan. The APR takes into account not only the interest rate on the loan but also any other fees or charges that may be associated with the loan, such as origination fees or prepayment penalties. It’s important to note that different lenders may have different policies and procedures for calculating APR and may offer different APRs to different borrowers.