Annual Percentage Rate (APR) is the interest rate applied for an entire year to a loan, credit card bill, or other money borrowed by a consumer. Lower APRs are typically offered to consumers with a higher credit rating, and lower credit ratings often result in higher APRs. APRs are designed to give consumers an annualized estimate for their interest payments, making it easier to compare options from different lenders.
When comparing loan or credit card options, the APR can serve as a rough estimate for how much you will end up repaying. In general, a lower APR is financially preferable. However, it is important to pay attention to the details of any agreement you sign, as full APR agreements can contain disparities that will affect the final paid amount. For example, an advertised APR is quoted as the interest applied over an entire year, but in many cases, interest is compounded monthly (meaning, depending on your payment schedule, you may end up paying interest on interest). Some loans incorporate fees like set-up charges, monthly service charges, or insurance, into the compounded amount, which could result in unanticipated interest charges as well. The simple APR (the often advertised percentage) is also known as the nominal APR. The term effective APR (EAR) refers to the nominal APR plus the added interest on any compounded fees – or the total interest amount the consumer actually ends up paying.
In the United States, the Truth in Lending Act requires lenders to disclose the nominal APR before finalizing any loan or credit card agreement with a consumer. Unfortunately, full APR agreements (and the fees included in their effective APR) are not federally regulated, meaning consumers need to pay close attention to the terms of any loan or credit card agreement they sign, and when comparing their options. Online tools, like any of Columbia Bank's many loan calculators, can be very helpful in comparing loans and determining a figure closer to your effective APR.
Columbia Bank offers competitively low APRs with no hidden fees for our customers, for personal mortgage loans and consumer loans, as well as for business loans or business debit card services. Contact Columbia Bank with any questions about our lending services or APRs!