You’ve probably heard about APR before. Maybe it was on a car commercial, or perhaps you’ve been shopping around for a loan. But what is APR? Let’s explore this important aspect of borrowing so you’ll be fully prepared to make an informed decision.
What is APR?
APR is a term vital to understanding your borrowing process. APR stands for Annual Percentage Rate, the total annual cost of your loan. The lower the APR, the less you’ll have to pay.
It’s a common misconception that APR is just an interest rate. But in the world of loans, they’re not exactly the same thing. Interest is only part of the final figure that determines APR, which also incorporates the fees associated with your loan.
Knowing the total cost of the loan, and not just the principal amount, is crucial. It’s not only important for the loan planning process and determining how much to borrow, but it will also help you fine-tune your monthly budget, which is important in itself for on-time or early loan payoff and overall financial success.
But perhaps the most helpful use of APR is for loan shopping. You might find one lender with a lower APR than another. It’s basically like sorting by price, lowest to highest. The lower the APR, the less the loan will cost you in the long run. However, APR shouldn’t be the only factor in choosing a lender. Some lenders will look at a loan customer with little or no credit history and make the approval process very difficult, while others, like Helix by Bank of Orrick, lend to people with lower credit scores. This is because Helix understands that someone’s financial situation is much more than a credit score.
Now that we’ve defined APR, let’s talk about how lenders determine what your APR will be. At Helix, we’re open and honest with our APR calculator. This formula is an industry-standard, so whether you borrow from us or another lender, you’ll know where the numbers are coming from. Now, let’s all take a trip back to algebra class.
Calculating your loan monthly payment
First, we’ll need to determine your interest rate. Interest, as you probably know, is the monthly amount you pay your lender on top of your monthly share of the principal. It’s a simple percentage of that principal amount. Most reputable lenders generate a majority of their profits through interest charges.
There is no industry-wide interest rate for a personal loan. Each borrower will have a unique rate based on several factors, including employment status, age, payment history, and credit score. Don’t worry; if you suppressed a shudder at the words “credit score,” you’re not alone. At Helix, we recognize that sometimes people without credit history still need to borrow money. Many of our customers have “sub-prime” credit scores when they apply, which is why we make it a point to work with them and try to instill good repayment behavior so that their personal loan can have a positive impact on their credit score.
Take some time to determine your interest rate, and utilize that to calculate the amount of interest you will be paying on a monthly basis. You can always utilize a loan calculator to figure how your monthly payments will break out.
As you’ll recall, interest is how lenders make their profits, so sometimes they’ll charge you penalty fees for fully repaying your loan early. However, at Helix by Bank of Orrick, we have no penalties for early repayment. Why? Because we want you to pay your loan back as soon as possible. We want to help you succeed, and that means getting out of debt as quickly as possible. If you have the opportunity to pay off your personal loan early, it’s just common sense to do so, and we will never penalize you for it. In fact, unlike many lenders, we have NO early repayment penalties. This is what our customers love the most about Helix. They get the benefits of an installment loan, knowing they will be able to pay the loan back within a few months and save themselves high interest payments.
Fixed vs. Variable APR
The last thing we’ll cover is fixed vs. variable APRs. As the term suggests, a fixed APR remains constant throughout the life of the loan. You’ll be able to budget and plan your repayment using that number. Variable APRs can fluctuate. Some borrowers opt for a variable rate because it can actually work in the borrower’s favor. However, it can also work against the borrower, depending on how the factors of the variable rate fluctuate.
Helix uses fixed rates. The majority of our customers are only just beginning their journey toward financial stability, and we believe it’s wiser to limit major risk factors at this stage.
We hope this quick explainer has helped clarify APR as you prepare to take an educated step into a personal loan. If you have any questions about APR or any other aspect of the borrowing process while filling out your loan application, or at any other point in time, please don’t hesitate to reach out to us here at Helix by Bank of Orrick. We’re always happy to help.
Mind your loan details
You’ll be hard-pressed to find a legal document without paragraph upon paragraph of fine print. Most of the time it’s complicated jargon you’d almost have to be an attorney to understand, and loan paperwork is no exception. Sadly, many lenders make it their business model to use the fine print as a hiding place for clauses that will give them the right to adjust your interest rate, add complex conditions to your loan, or charge you fees.
That’s not what Helix is about. We want to educate our loan customers, offering personal loans with simple terms, clear communication, flexible schedules, and no hidden fees. Our philosophy puts a magnifying glass up to the fine print. It’s our goal to educate our customers about smart, responsible borrowing practices and build their credit. If you’re in the market for a personal loan, feel free to fill out a personal loan application today, and experience the Helix by Bank of Orrick difference.