APR (Annual Percentage Rate)
Annual Percentage Rate includes the rate of interest and other fees charged on a sum borrowed. It is calculated annually by taking into account the total amount borrowed, all the fees associated with the transaction and the time period for which the loan has been taken.
APR and credit score
Annual Percentage Rate depends upon your creditworthiness and this can be determined from your tendency and ability to repay your loans. The more your credit score is, the lower your APR will be. For example, if you have a credit score of 850 to 720, you will be offered an APR of 10% to 12%. On the other hand, one with a score of 300 to 640 will have to bear it as high as 28% to 32%.
However, this may not be the parameter to determine the APR of every lender. The payday lenders, who do not perform any credit check will not consider high credit score only and hence, the poor credit borrowers will still have chances to get financial assistance, in spite of having a lower credit score.
Factors affecting the APRs
There are a few factors other than credit scores that affect the Annual Percentage Rate, such as:
- Type of Credit - It is very important for you to know that the type of credit you borrow will definitely affect your APRs. For example, if you get a secured loan like car title loans, the APR is lower.
- Search for lenders - Researching for more lenders around you may help you to get a better loan deal with a lower interest rate as per the lender's loan terms.
- Your annual income - The APR will always depend on your capacity of repayment. So, the higher your income is, the lower the percentage of APR is charged.
- Stability of employment - Your stability on your jobs will increase your chances of getting lower APRs.