08 Sep 2017   /   0 comments

What Does APR Mean?

Paul

pexels-photo-220777Trying to apply for a credit card or loan, you may come across the term “APR” and think to yourself. “ What does APR mean? ” No need to worry because TFC can explain it to you today!

What Does APR Mean?

APR stand for annual percentage rate. This determines how much it will cost to borrow money for one year including the interest. Knowing the APR can help you compare with other companies who it will be cheaper to borrow money from.

For example, if you borrow $100 with a 10% APR, then you’ll be paying $10 in interest. Unfortunately, it doesn’t work like that most of the time because you will have other fees to pay out, or additional monthly interest rate fees. Credit cards tend to take out a daily or monthly interest rate fee, dividing it from the total APR into the individual amounts. Because of compound, you’ll pay more than $10.

What is 0% APR?

You may have seen a 0% APR advertisement for cars, furniture, or other home appliances. This means that you won’t pay any interest on the money you borrow. As enticing as this sounds, this usually isn’t permanent and there are other fees added in.

For credit cards, they may be offering 0% APR for a portion of time but have higher interest or higher fees for balance transfers. With cars and furniture, it usually only lasts for a brief time. There could also be an annual fee, or a higher interest rate if you don’t pay off the money by the time the promotion is finished.

Variable APR

Some loans offer a variable APR. This means that the APR could change over time, whether lower or higher. If you pay off the minimum balance and maybe a little extra, the APR could lower because you’re seen as a good borrower. If you miss payments, this could lead to a punishment with a higher APR. It’s a risk that, for some companies, you have no choice but to make.

What affects APR?

There are many factors that will affect your APR from different lenders:

  • Type of loan: Home loans and auto loans will have lower APRs because there is an item that can be used as collateral. If you aren’t making payments, then it won’t be a loss for the companies because that means they can just take your home or car and sell it for what it’s worth.
  • Credit: Your borrowing history is an important reflection for lenders. It shows how trustworthy you are as a lender. Lending companies judge the rate they give you off of your previous history.
  • Ratios: The ratios not only affect your credit but your APR for those who do accept you. This reflects the amount of loan to value, as well as the debt to income ratios. It reflects how much you have to pay off already in your life and the income you have coming in. If you have too much debt and not enough income, then you are seen as a higher risk.

APR for Title Loans

The APR on title loans can vary depending on the state you live in. In some places there are caps on loans based on the amount, while other locations don’t have any caps at all. Arizona sets a maximum of 120% APR for anything over $5,000 while California has no caps for anything over $2,500. New Mexico offers no caps at all.

APRs for title loans tend to be higher because of the lending process. For example, because TFC doesn’t use your credit score in the consideration of your interest rate or fund, that makes the lending process a little riskier for TFC.

The plus side is that TFC offers sliding interest scales for those who pay their monthly payments on time. Not only that, but TFC doesn’t mind lending to those who are deemed “too risky” by other lenders. We want our customers to have access to the funds that they need. A mistake or two in their credit score should affect that.

Auto Title Loan with TFC Title Loans

You know a little more about APR and what the entire system entails. With that in mind, it’s time to apply for an auto title loan with TFC! Whether it be a financial dilemma or a vacation to pay for, TFC is willing to give you the funds you need by simply using your vehicle as collateral. You can have your funds in as little as one business day! So, what are you waiting for? Give us a call today or apply online!

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