If you have in the past, or are now planning to borrow a loan, you’d be familiar with the term APR or Annual Percentage rate. APR gives you an idea of the overall cost of borrowing. LoanTube’s convenient and efficient APR calculator can help you compare loan offers from different lenders. Read on to understand how to use it. ⭐Personal Finance ⭐Money Management

Loan comparison is an integral part of the borrowing process. We compare interest rates on loans to borrow the one with the lowest interest rates. But interest isn’t the only extra fee you pay for borrowing money. Your lender may impose closing costs, arrangement fee or early repayment charges – the overall cost of borrowing. Annual Percentage Rate or the APR is the holistic cost of a loan. Even a loan with the lowest interest rate may have a high APR. So should you continue side-lining all the extra charges?

What is APR?

APR refers to the annual cost of borrowing charged by a lender. It is the actual, overall yearly cost of the loan over the loan’s term, expressed as a percentage. This cost encompasses all additional fees, or charges levied on the loan, including:

      • Interest rates
      • Closing costs
      • Loan origination fees
      • Mortgage insurance
      • Any other additional charge

Lenders show you APRs when you apply for a personal loan. However, the interest rate that the lender will charge on loan is different from the APR.

What’s the difference between APR and interest rates?

Interest Rate: The interest rate is the cost of borrowing a loan. It’s a percentage charged on the total amount of money that you borrow. Interest rates aren’t ‘all-inclusive’ – they don’t include any additional charges associated with the loan. Therefore, it is not practical to calculate your monthly instalments using just the interest rate. 

APR: This is the ‘all-inclusive’ cost of your borrowing. Since it factors in all additional charges, you’ll know just what you need to repay every month towards your loan.

Let’s illustrate this through an example:

For instance, if you borrow a £5000 loan over an interest rate of 12% for 24 months, you’ll have to repay £235.37 each month. Your total repayable amount will be £5648.82. 

Now, if the lender levies a loan origination fee of £95 for the same loan amount (£5000) and an interest of 12%, your APR will be 13.90%. The payable monthly instalment will be £239.84, and the total will amount to £5756.14. 

How Does APR Work?

APR shows the accurate picture to the borrower – they learn exactly how much they’ll repay. We typically compare loans based on interest rates. But it is essential to understand that a loan with low-interest rates may have a higher APR. For all you know, the lender could charge an exorbitant origination fee. Therefore, keeping the holistic cost of the loan helps you find better deals. Compare loan offers based on APRs rather than interest rates to know the actual loan cost.

We have designed our APR calculator to make number crunching easier for you. Here’s the simple formula that you can use to calculate the APR of your loan manually:

APR Calculation Formula

How do I calculate APR using this calculator?

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We have designed this calculator to help you understand the overall cost of borrowing. The Annual Percentage Rate is calculated based on the interest rate, loan amount, the term of the loan, and finance charges levied on the loan. You can calculate the APR of a loan that you are considering to borrow through these 4 easy steps:

1.   Loan Amount

Enter the amount of money that you are planning to borrow. Remember to borrow what you can afford to repay. Failing to keep up with repayments can harm your credit health. 

2.   Interest Rate

Herein, you enter the interest that your lender is charging you, expresses as a percentage. 

3.   Loan Term

Fill in the length of your loan term. Tell us how long you are planning to borrow the money for. Choose your repayment period carefully because you’ll have to adhere to the terms of repayment. 

4.   Finance Charge

Some lenders charge a loan origination fee, brokerage fee, or other related charges when you borrow from them. The APR tells you the combined cost of borrowing by including all of these overhead fees. 

Authorised lenders who operate under the Financial Conduct Authority guidelines will always display the APR for their loans offers. But an APR calculator helps you compare APRs on various loan offers from multiple lenders.

What is a good APR Rate?

There’s no concrete number that defines a good APR rate. The lower it is, the better. There are several factors involved in setting the APR. When you apply for a loan, a lender will assess your creditworthiness and affordability among various other factors, to establish the appropriate interest. Your credit score, debt-to-income ratio, employment history and income are crucial factors for setting the interest rate. 

With a good credit rating and low debt-to-income ratio, you may get offers with low-interest rates and APRs. So, if you don’t need the money urgently, take some time to work on your credit score before applying. The wait may be worth it if you qualify for low APR offers.

7 tips for managing loan repayments efficiently

Regardless of the form of credit, or at what APR, it is vital to keep up with the loan’s repayments. By now, we’re familiar with the repercussions if missing repayments on a personal loan. This is something that everybody warns against, but nobody tells you how you can achieve it. We’ve got your back on this one too!

Here’re are 7 tips to help you manage your loan repayments efficiently:

      • Incorporate your repayments into your monthly budget and adhere to it. 
      • Set up a direct debit to get your instalments deducted automatically from your account. This is a great way to stay on top of your repayments. 
      • Always keep an eye on your account balance. Ensure that the balance suffices for your monthly instalments. 
      • Try and use a checking account for your repayment debits. You don’t want to lose out on the interest that you’re earning on your savings account. 
      • Consolidate your debts to organise your repayment cycle. 
      • Even if the loan’s tenure is short, don’t rule out the refinancing option. With an improved credit score, you may find better deals in the market. 
      • Check if the lender imposes a charge on early repayment. If they don’t, then put that yearly bonus to good use and free yourself from debt. 

In conclusion

Loan comparison makes it easier for you to find the right loan with low APRs. Explore the market and compare the APRs of multiple offers before settling for one. You’ll get an idea of all the APRs that are available to you. 

LoanTube‘s Real Rate loan comparison engine can help you find your ideal loan offer at the click of a button. All you need to do is fill a quick and easy application form to compare offers from multiple lenders. 

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