What is APR

Know Your APR

APR is the acronym for Annual Percentage rate. This is the annual interest rate the consumer pays for credit. APR is very different for short term loans like credit cards and long-term loans like mortgages.

Because Americans use credit to purchase goods and to finance their homes, it is imperative to know the APR attached to the credit card or mortgage. Amazingly, many consumers are not completely clear on what the APR is for various forms of credit.

The interest consumers pay for credit can vary from lender to lender. Experienced borrowers tend to do business with lenders who offer lower APR's. Over the life of a 30-year mortgage, it is critical that the borrower compare mortgage interest rates and points charged by the lender to process the loan. This same comparison should be used for credit cards.

The APR on 30-year fixed mortgages have slid below the 4 percent threshold during 2011. This is an amazing landmark and makes the mortgage loan one of the most cost-effective and appealing credit tools in the credit marketplace.

The current Truth in Lending Act (TILA) now requires lenders to fully disclose the APR to the borrower. Since the recession, the TILA has been given stricter compliance teeth. Lenders must not only furnish the borrower with a list of all costs related to loans including any points, attorney fees, mortgage recording fees, mortgage insurance, tax escrow requirements and the APR.

The lender must submit a written form with all these expenses clearly identified. The purpose is to give the borrower a clear summary that can be compared to another lender's charges and APR.

This information must be issued to the borrower no more than 3 days after the borrower applies for a loan. Under the TILA, credit card companies are permitted to advertize an annual percentage rate. However, before the consumer executes a credit card, the provider must inform consumers of the actual APR.

Borrowers should be aware that the Truth In Lending Act mandates that the lender notify the consumer about their APR, it does not force lenders to comply with a uniform annual percentage rate. This explains why interest rates vary from one credit card provider to another. It also permits lenders to have differing mortgage APR's.

Experienced borrowers know that the APR does not include certain charges like late payment charges or other fees related to various lending tools. The consumer should insist upon a document from the lender explaining the APR and all other borrowing related costs.

Since the recession, Americans are saving more and purchasing less. Many Americans have suffered losses in equity markets, the housing market and currency markets. After experiencing these downturns, Americans are becoming more diligent about personal spending and APR's.

There are different types of Annual Percentage Rates. The Fixed APR remains the same during the life of the loan. The Effective APR includes costs related to the loan. In the recession, the Variable APR proved to be a devastating type of mortgage. Variable APR's can change at any time and are usually linked to another form of credit like the prime lending rate. A fixed rate APR always remains consistent through the life of the mortgage.