Personal loans are a boon as they enable you to resolve your financial emergencies independently. With an instant personal loan app at your disposal, arranging money has now become as easy as cake. All you need to avail of a loan is to download the app on your smartphone, submit your details and give the documents required.
Before you proceed, there are a few details that you should make sure of to ensure that your loan is easy on your pocket. You don’t want to be in a situation where you are caught off-guard and have to repay more than you had estimated. That would be an unpleasant situation and may wreak your house budget.
One of these aspects you need to take care of is APR. Before taking a loan, several people may suggest you take the loan with the lowest APR. But what is it, and why it is important. Let us find out.
What is APR?
APR is short for Annual Percentage Rate. It indicates the total cost of the loan or the total amount of money that will go out of your pocket to avail of the loan.
APR includes the annual interest rate on offer and other miscellaneous charges that the lender may levy. There are various charges associated with a loan like processing fees, administrative and insurance costs. As APR considers all of them, it can give you an exact idea of the money you will have to repay.
How is APR calculated?
The APR is expressed as a percentage and indicates the total cost of a loan. It includes the interest rate and other miscellaneous charges that a lender may charge you for extending you a personal loan.
If you cannot find the APR details on an instant personal loan app, you can calculate it on your own using the formula given below.
APR = [{(Fees+interest)/Principal}/number of days]*365*100
What is the importance of APR?
When you plan to take an instant loan, you will want one that comes at a lesser cost. The cost of a loan defines the amount you will have to repay the lender to clear your loan. Generally, people compare the annual interest rates across the lenders to identify the one with the least cost.
However, the annual interest rate may not give you a clear picture. It is a possibility that a lender may have a competitive interest rate but higher processing and administrative charges. As a result, you may end up paying more than you imagined.
Thus, to borrow wisely, it is advisable to always ask for the APR if your lender does not convey it explicitly.
What are the factors affecting your APR?
When you apply for an instant loan, the interest rate is at the lender’s discretion. That, in turn, affects your APR. For instance, lenders tend to consider your credit history, credit score, salary, and a steady source of income when deciding the interest rate. It is why the same lender may charge different rates to you and your friend.
If you have taken and cleared a loan from a lender in the past, there is a possibility that the lender will charge you a lower interest rate this time. Apart from this, the miscellaneous charges related to a loan vary across lenders. Asking for APR will enable you to identify those costs that could inflate your overall cost of the loan.
Conclusion
With the knowledge of APR, you can make an informed decision when applying for an instant loan.When you know your total liability, you will be better prepared to repay the loan and save yourself a good deal of trouble.