The concept of a car loan seems simple on the surface: A lender gives you money to make the purchase, and you pay them back over time, adding a little extra to the monthly as a fee for the lending service. And while that is the simple version, the interest rate doesn't tell the entire story regarding the loan's full cost. For that, we need to look at the APR or, Annual Percentage Rate.
What's the difference between interest and APR?
While interest refers to the rate a lender charges to provide a loan, there are more elements at play that affect the total amount paid. In addition to the vehicle's cost and the issuer's chosen percentage, APR includes a gamut of variables, including what the interest amounts to in a year, as well as standard fees like prepaid financing charges and origination—the payment pertaining to the loan's processing. Accounting for these factors makes APR a more precise reflection of the cost of financing your next car.
How do I know my APR?
The easiest way to get a precise APR number is to simply inquire with the lender. The US Truth in Lending Act directs lenders to clearly disclose all contract details, including the APR, before the agreement is signed. You will often see APR mentioned in television and print ads, but you shouldn't take those at face value right away due to the next question…
Why is APR important
Although APR tells us more about the loan's full cost than interest, it's not necessarily more important. In fact, the two are inexorably intertwined, as interest influences APR more than any other variable. And the interest usually depends on one's credit. The higher a credit score, the less "risky" a borrower appears, and the more comfortable the lender is with their repayment capability.
For this reason, recalling the advertisements in the previous section, it's common to hear the words "for well-qualified buyers" after the APR is stated. Those numbers represent the best possible APR. Now, less than perfect credit doesn't automatically disqualify someone from that rate, but it increases the possibility of seeing "1.9% financing" turn into "3.9% financing." And for that reason, it never hurts to reach out in advance of the final paperwork to better prepare your budget.
Convenient Nissan Financing near New Haven and Danbury, CT
At Napoli Nissan, our online credit application makes it easy to qualify for financing before you even leave home. If you have any questions about our inventory, special offers, or the financing process, please don't hesitate to reach out or visit us here in Milford at your convenience. It will be our pleasure to assist you.
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