What is APR?

When you are financing a new car, truck, SUV or minivan, the term APR stands for the Annual Percentage Rate. But this can be a tricky real world figure to calculate as it requires knowing all of the fees, levies, surcharges and sundry other add-ons that could elevate your new vehicle’s finance payments over the course of a year. So, clearly, knowing the APR exactly winds up being more important than just knowing the straight-ahead interest rate. Confused yet?

What is APR?

Most new and used car buyers wrongly assume that the interest rate that they see in an advertisement is exactly what they will be paying to finance their new car, truck, SUV or minivan. Knowing the difference between what is APR rate and interest rate and can be tricky because they are definitely not the same figure in your financial agreement and we will try to clarify what your interest rate on a loan will mean for you and also give an idea of how that differs from an APR rate.

APR vs Interest Rate

Why don’t we start off by explaining a little bit about what differentiates an APR rate from your interest rate and the best way to keep it simple is to lay out the difference which really comes down to one general concept. Your APR rate amount should legally represent the entire, complete “true cost of the loan” over the time you owe the lender money. Your interest rate is usually the percentage you owe each month based on each $1,000 you borrowed. Check out our “What is an Interest Rate” section for more clarification on that issue.

Credit Rating and APR

The most common definition for the letters APR is that it is the cost of attaining a certain amount of credit for a certain individual over the course of a year long period. As you may have learned reading about interest rates, your APR from any perspective lender depends heavily on your credit rating. It may seem silly that forgetting to pay your last local telephone bill your junior year in college can still affect you when you’re nearly 40 but no matter what your age never let any bill go to collection if possible. If you take care of any outstanding collection company claims against you it will be easier to get a lower APR or annual percentage rate.

Time to Get a Car Loan

One final factor that can wreak havoc with your brain when trying to find a fair and reliable car loan with a good APR is that sometimes hidden fees and variable rates are sometimes written into the fine print so be careful who you decide to work with. It is always your choice to shop around and there are many honorable independent lenders, but you may pay more with a manufacturer’s lending arm but you at least know their first priority is to get you to buy another one of their new cars. And using that as leverage can sometimes lead to better service and a better purchasing experience.