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What Is APR And APR Limitations

April 11, 2014 by Ninja in Saving Tips with 0 Comments

interestWhen you are looking into any type of loan or even a credit card you will find that an annual percentage rate (APR) is always discussed.  This is a rate of interest that is calculated on a yearly basis and will include all fees and other expenses that are needed to obtain the loan you are seeking.  The annual percentage rate can range anywhere from three percent to well beyond twenty percent. 

Annual Percentage Rate For Loans

When speaking of an annual percentage rate for any type of loan what is being discussed is that interest rate that will apply to the loan for the life of the loan.  This amount will also include any fees that the lender will ultimately charge for administrative actions on the loan.  When calculating the annual percentage rate on your loan there is typically three steps.  The first step will be to add together all of the one time costs.  This will be the fees that are discussed above.  The next step is to calculate the monthly payment for the life of the loan until the loan is paid in full.  This calculation will be based on the interest rate assigned to the loan.  The last step is the interest rate will be applied to the full amount of the loan.  This will allow for the repayment amount to equal the total amount calculated for the repayment amount every month at prlog news here .

Why Use An Annual Percentage Rate

The use of an annual percentage rate is to help calculate the total amount of what the loan is going to cost you to borrow it.  The other use is to make the topic of interest easy to understand for the average person who does not have a financial background.

Limitations On Annual Percentage Rates

There are many different types of loans out there that try to take advantage of the borrowers and charge them a very high amount in interest.  For this reason the federal offices and government are starting to regulate how much interest can be charge.  The most popular type of loan this is happening to are payday loans.  Often times the interest rates that can be found on these loans are twenty six percent or even higher.  Therefore the government agencies are putting limitations on annual percentage rates.  This will help to protect the borrowers from being charged too much for the money that they are borrowing and end up in deep debt due to the fact that they cannot afford to pay off the loans.

For this reason many of the payday loan companies across the country are going out of business.  Without being able to charge the high interest rates they were charging they are unable to make a profit and ultimately end up out of business, which puts the employees out of work as well.

Conclusion

As a borrower you should be educated on the ins and the outs of the loan world.  You should know when you are being given a good interest rate or one that is too high.  Without this knowledge you might be the victim of an interest rate that is too high.

 

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