What Are The Differences Between APR vs. Interest Rate?
These are all great questions.
APR vs. Interest Rate: What’s the difference? Is it important to know? How do lenders calculate both?
I have good news! This post aims to educate you on Interest Rates and APR,
their differences, and how they are calculated.
APR vs. Interest Rate
The nominal interest rate, or advertised rate, refers to the percentage you must pay for a specific period to borrow money from a lender.
The interest rate is represented as a percentage, and it can be either fixed or variable.
While the interest rate can be set for any period, it is usually expressed as an annual rate.
Variable vs. Fixed
Interest rates can be either fixed or variable.
A fixed interest rate will never change, regardless of whether external factors that generally influence interest rates.
A variable interest rate, on the other hand, can vary during your loan lifetime. That is because variable interest rates are tied to an index rate.
The Annual Percentage Rate, or APR, includes the interest rate of the loan and all other costs involved in it, such as fees, closing costs, discount points, etc.
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