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What APR Means

What APR Means and Why It’s Important

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If you’re thinking about applying for a private student loan, you’re probably paying careful attention to interest rates. After all, that’s what will tell you how much you’ll owe, right? While interest rate is important, though, there’s another number that will actually give you a better picture of what you’ll end up paying — the annual percentage rate, or APR. So what is an APR, and why is it so crucial? Below, we have a rundown of what this number means for you and your loan.

What is APR?

A loan’s annual percentage rate is, as you might guess by the name, expressed as a percentage. It represents the total cost of the loan over the entire term length, including interest rate, loan fees, or any other costs of borrowing.

Lenders can vary widely in the structures of their loans and the fees they include. Having a standard calculation such as APR means that you can easily compare what different loans will actually cost you.

What does APR mean for my loan payments?

Lenders are required by law to disclose the annual percentage rate, in order to make sure the loan is transparent and easily understood by the borrower. It’s important to keep interest rates in mind, as they will impact your monthly payments — but because loan terms can vary between private student lenders, there may be several different factors to consider that can affect what you’ll owe.

For example: say you’re comparing loans between Company A and Company B. Company A might have a lower interest rate than Company B. However, it might also include additional fees that Company B doesn’t have, which could mean you’d ultimately end up paying more overall. By having a common measurement such as APR, you can better understand how two different financing options really compare, and you won’t be given a quote for a low interest rate only to be surprised by additional fees later. When it comes to choosing a loan, APR is definitely a number you want to pay attention to!

Want to know more about APR and other loan terms?

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