Annual Percentage Rate Explained

Annual Percentage Rate or APR is a yearly rate of interest that includes all of the fees and expenses paid to acquire the loan or credit card. APR can vary anywhere from around 3% right up to 21% and beyond.

APR for Loans:

APR is a standardized expression of the interest rate that applies to a loan or credit card, taking into account at least some of the one-time fees that are applied by the lender. There are several ways to calculate APR, but the process generally includes 3 main steps. Firstly, all one-time costs are added onto the loan amount. Next, the monthly repayment for the loan is calculated based on the loan's specified interest rate. Finally, the interest rate, that would have to be applied to the full loan amount in order for its repayments to equal the calculated monthly repayment, is calculated.

To see this in action, consider the following simplified example where you borrow $1,000 and there is a loan setup fee of $50, making the total amount borrowed $1m050. If the interest rate is 10% (compounding monthly) and the term of the loan is 12 months, then you will need monthly repayments of $92.32 to pay off the $1,050. However, a for the monthly payment of a 12 month, $1,000 loan to be $92.32 would require an interest rate of 19.32%. So, the APR is 19,32%. If the term of the loan was longer, for example the loan was for 10 years instead of 12 months, then the loan fees would be spread across this period, and the APR would drop significantly.

The aim of using APR is to calculate a total cost of borrowing, and to make the interest understandable to an average consumer, so that they can compare loans to determine the best deal and also understand the loans that they already have.

Unfortunately, despite repeated attempts by regulators to establish a single standard for the calculation of APR, it does not always represent the total cost of borrowing nor does it really create a standard that allows consumers to precisely compare the costs of a loan.

The main issues in the calculation of APR arise because the definition for the calculation of APR does not specify which one-time fees must be included and which can be excluded. For example, should APR take into account fees and commissions that are paid to someone other than the lender ? Should APR include penalties, such as late fees ? As a result, it is partly up to the lender to determine which fees are included (or not) in the calculation of APR.

In addition, APR is also highly dependent on the term of the loan. For example, the APR for a loan with a 25 year duration cannot easily be compared to the APR for another loan with a 15 year duration.

APR for Credit Cards:

For credit cards the APR is a much simpler calculation. Due to the fact that the amount of money borrowed really isn't known, you can not use the formula that is used for most loans. It's simply a calculation of what the effective interest rate is for one year when you take into account that the interest is compounded monthly.

The formula for this is apr=(interest/12 + 1)^12. So for a card with a 10% interest rate it would be apr=(0.1%/12)^12, which is apr=1.0083^12, so apr=1.104 or approximated 11%. Really you should never have to calculate this yourself though.

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How to Find 0% Interest Credit Cards

Are you in the market for 0% interest credit cards? They most definitely can still be found. There's just not nearly as many as there used to be just a few short years ago. The recession and the tightening of credit amongst banks and financial institutions has made these offers tougher to find.

It wasn't all that long ago at all that 0% APR card offers were seemingly everywhere. Card issuers aggressively used them to not only attract new customers but to also try and lure customers away from their competitors. As it turns out it was actually a rather effective promotion.

Zero percent offers are of course for an introductory period. The intro period usually lasts either 6 months or 12 months. When the introductory rate expires the agreed-upon APR immediately takes effect. That rate is predetermined by the issuer and should be spelled out in the disclosure statement.

Another very popular tactic of the issuers, which tied right into 0 interest credit cards, was a balance transfer option. It was not at all uncommon for people to transfer their balances from one issuer to the next when their interest rates became rather expensive. It was a cottage industry unto itself.

Those days are over now. The credit card industry is facing record high default rates and has become quite selective when screening potential cardholders. Not only is your interest rate predicated upon your credit rating but also whether or not you'll even be granted a credit card.

With that said there are still several offers available with a 0% APR. By checking on any one of the better comparison websites you will be able to find these types of offers and compare them for yourself. There are usually categories devoted to low interest credit cards.

It is also very important that you read the terms and conditions so that you fully understand what the APR will be when the introductory period ends. Far too many people suddenly find themselves paying very expensive bills because they seem to have forgotten that they would in fact someday be held responsible for paying interest on the credit that was extended to them.

Please be sure to carefully read the disclosure statement so that you fully understand not only how long the introductory period lasts, but what your financial responsibilities will be when it ends. In addition to how much interest you owe, you also want to know exactly what the fees are. These are the things that determine your true cost of credit.

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Identity Theft Nightmare (The Today Show)

Interesting segment from the Today Show If your wallet is stolen: File a police report; Start keeping detailed records including the names, dates, and phone numbers of people you've reported this theft to; Report all your credit cards as stolen so that you are issued new cards with new account numbers. (Most credit card companies will automatically place a fraud alert in your credit report on your behalf when you notify them of a stolen card); FREEZE all three of your credit reports--do not rely on the theft alert alone, as it will not fully protect you from having accounts opened in your name, that is something only a full credit report freeze will do; Subscribe to a credit monitoring service (if it is available with a frozen report). These services supposedly provide insurance in the event you are a victim--not many people can afford to lay out $50000 in legal fees and that is where ID Theft Insurance will come in handy, assuming your homeowner's policy doesn't already offer this type of coverage. MYFICO, Equifax, Transunion and Experian all offer credit report monitoring (some of these services are made available to those who've already frozen their files). Also, as in the case of this victim, you may want to alter your banking habits. The thief in this case supposedly managed to withdraw funds and write bad checks using the victim's driver's license. Sign up for email alerts on all your accounts so you can catch unusual activity before it gets out of hand. Get a Motor ...