Also known as the annual percentage rate, the APR is a number that is used to denote the interest rate applied to a loan amount for one whole year rather than for a month. It is a uniform way of measuring exactly how much a customer is paying for a loan. When calculating APRs, other fees and charges are included in the computation.
In the United States, lenders of all types of loans are required to fully disclose the APR on their products.
The important role that the APR plays today is uniformity, in the hopes that consumers will have an easier time in determining the cost of financial products coming from different lenders/providers. This is due to the fact that, prior to the APR disclosure requirement, the differences in how interest rates were applied and calculated made it complicated for consumers. Even numbers were relative and didn’t give a real measure of the cost of the loan. With the APR, computation of rates have been standardized - more or less.
The truth is that lenders are still given leeway as to how the APR is calculated exactly. Taking into consideration the estimates, additional fees, and so on, consumers ought to be aware that the actual values may be different from one lender to another. If you are comparing loan costs and amounts, do not hesitate to get in touch with the provider in order to ask more about the APR and factors taken into consideration. Understanding what goes into the APR calculation can help you make the right decision.