back to articles | December 31, 2018 | Dale Peterson
Categories: Auto Loans & Financing Refinance To Save
Annual Percentage Rate, APR
What is the Annual Percentage Rate, or APR, relating to auto loans?
The definition of annual percentage rate, or APR, relating to auto loans, is the cost of credit over one year, shown as a percentage.
The APR is an interest rate that is different from the note rate. The annual percentage rate is a standard rate used to compare loans and loan programs. It was designed to measure the "actual cost" of a loan. The Federal Truth in Lending law requires lending companies to disclose the APR when they advertise a rate. This levels the playing field, preventing lenders from advertising a rate that has "hidden fees". Your credit history, current finance rates, competition, market conditions and special offers are among the factors that influence your annual percentage rate, or APR. It's important to remember that the APR does not affect monthly payments. Your monthly payments are decided by a combination of the interest rate and the length of the loan.
What decides Annual Percentage Rate?
Annual percentage rate is influenced by many factors. Your credit history, current finance rates, competition, market conditions and special offers are among the factors that influence your APR. Certain fees are USUALLY included in the APR:
- Points (discount and origination)
- Pre-paid interest
- Loan processing fee
- Underwriting fee
- Document preparation fee
Other fees are SOMETIMES included in the annual percentage rate, such as the loan application fee.
Annual Percentage Rate and the Cheapest Loan
In theory, the lowest price loan would be from the lender with the lowest APR, in practice, however, the APR doesn't work quite that well. The rules to compute the annual percentage rate are not clearly defined. Different lenders use different calculations to figure the annual percentage rate.
The best way to compare loans is to get multiple quotes from national lenders. With myAutoloan.com, you get to pick from up to four offers from auto lenders . . . That's why we say it's "Your Loan, Your Way".
Make sure you're not comparing "Apples to Oranges". Don't compare a 36 month loan with a 48 month using the APR. The 36 month loan may have a lower interest rate, but could have a higher APR, because the loan fees are amortized over a lesser period of time. Again, that's why we provide you with up to four quotes from different lenders, so you can choose the lowest rate.
Only use the annual percentage rate as a starting point. Fill out the online loan application at myAutoloan.com, and use the actual estimates from the different lenders, so you can choose the lowest interest rate, and get the cheapest loan.