APR vs. Interest Rate

When you apply for an auto loan, you’ll see a variety of figures on your final paperwork. Two of these are the APR (annual percentage rate) and the interest rate. While they may seem similar, there are fundamental differences that impact your monthly payment and the final cost of your vehicle purchase. Read on to learn the differences between the two and, if you still have questions, visit our FAQ for answers to our most commonly asked finance questions.

Understanding Interest Rate

If you’ve borrowed money to make a major purchase, such as financing a vehicle or home, you’re already familiar with the concept of interest and probably have a good idea of how it’s calculated. Interest is the fee you pay to the bank in order to use their money for a set term. This rate is dependent on your credit score, your debt to income ratio, and the length of your auto loan. Interest rates can be fixed or variable depending on the type of loan you’ve applied for.

How APR Differs from Interest

The annual percentage rate includes your loan interest rate, as well as other fees added at the time you applied for financing. These fees vary by lender and could consist of an annual service charge, lender fees, loan processing fees, underwriting fees, and legal fees, although there could be other fees, depending on the costs incurred by the lender at the time of the loan.

APR vs. Interest Rate: Auto Loan Payments

Your loan’s APR is, ultimately, one of the most important numbers to understand, because it impacts not only the final cost of your car loan but also the monthly loan payment as well. Having a clear picture of this number will help you to prepare your budget, so your payments don’t add too great a strain to your monthly expenses, and you can enjoy your new vehicle without guilt.

Easy Financing Options From Green Light Auto Credit

If you’re ready to upgrade your daily drive to something more comfortable, contact an associate at Green Light Auto Credit today. We make it easy to get the credit you need for that big purchase with our online credit applications and flexible loan plans that put you in the driver’s seat.

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