annual percentage rateSome people think that the annual percentage rate is the only thing that matters about a loan. This couldn’t be farther from the truth. While the APR of a loan is of course very important, it is only one of several major factors to consider before borrowing money.

In essence, every loan can be broken down into an equation. Finding the best loan is often just the matter of finding the right variables for that equation.

Annual percentage rate is the first of those variables…

What is the Annual Percentage Rate?

APR is essential the “cost” of borrowing money. For all funds borrowed, the borrower will pay a percentage of that amount as interest. The APR is the percentage charged per year the money is borrowed.

For example, with a 10% APR then you would be paying $10 per year for borrowing $100.

It is key to remember that annual percentage rate is based on an entire year. Many loans, which are designed for much shorter borrowing times, have a far higher APR to compensate for that.

For example, if you are paying 10% interest per month on that $100 loan, then you will pay $120 in interest for that $100. This is essentially 120% APR.

Other Loan Factors

The annual percentage rate is always combined with two other important pieces of information — the length or term of the loan, and the amount borrowed.

This is just as important as APR, because lenders place a lot of constraints on these factors. The length of the loan is dictated by the lender, down to every payment for the life of the loan. Loans are often structured like this so the lender can maximize their profits.

In other words… the APR might be lower, but you will be paying off the loan for a longer period of time.

Another thing lenders regular is the amount you can borrow. Banks and credit unions usually want you to borrow a lot of money, several thousand at least. If you are needing a small loan, just a few hundred bucks, they will not be interested in lending to you.

In other words… the APR might be lower, but you will be paying interest on a much larger amount than you wanted.

When you deal with National Small Loan, you get to set the repayment window! Our installment schedule gives you all the time you need to pay it off, but the flexibility to pay off the loan whenever you want!

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