Akira said:
Yep. APR = annual percentage rate
No, it most emphatically
doesn't mean what ramirez said.
It is NOT a rate charged on the "outstanding balance" every year. It's a rate showing the effective rate, including compound interest, fees and charges, for the duration of the loan. In other words, add in the fees etc, work out the
total interest payable, and show that as a percentage of the loan. It is therefore a rather artificial figure, and certainly isn't a percentage of outstanding balance. If it was, the actual interest element of the payment would go down month by month.
It should be noted that this is a somewhat artificial figure in that it does NOT necessarily reflect the interest you'll actually pay at any point in time, because that will depend on the exact terms of the loan, the way the calculation is made and whether or not you stick to standard repayment terms, or whether you either incur penalties or, for daily/monthly calculated loans, pay off early.
The point of the APR is that it is a legal requirement on loans, and that the method used to calculate it is mandated by lawe. Its real use to to compare offerings between companies, not to work out what you actually pay, month by month, or year by year. For that, get a repayment schedule for the loan itself.
Ramirez, loans vary very much in their terms and conditions. Some (like some mortgages) allow for increased payments, and the interest charged depends on the daily outstanding balance, so you can get ahead of the game by overpaying. Others calculate the interest for the entire period, or once a year, and you'll either not be allowed to overpay, or incur penalties if you try. You need to look at the fine print to be sure exactly what you're 'buying' with a loan.
