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APR v. Rate

  • 24-08-2009 11:09am
    #1
    eman66
    Closed Accounts Posts: 602 ✭✭✭


    What are these? What is the difference between the two?

    I'm looking at quotes from a broker. One lender has an APR of 2.60% and a Rate of 2.35%. A higher APR than Rate. Another has an APR of 2.29% but a Rate of 2.40%, a lower ARR than Rate.

    It has been said to me that the figure to base decisions on is the APR. A mortgage broker has said to me that "some of the costs that you pay at closing are factored into the APR for ease of comparison. Repayments are based on the Rate".

    No comprende!


Comments

  • #2
    dotsman
    Registered Users, Registered Users 2 Posts: 3,636 ✭✭✭dotsman


    Basically, because different institutions calculate repayments differently, it is impossible to compare different products/institutions. For example you might have a a product with a rate of 4%, which might end up being more expensive than a different product with a rate of 4.5%. Likewise, if there is a discount in the first year, the rate may be advertised at 1%, but over the life of the loan, you will be paying a lot more.

    Basically, APR is a consistent calculation that gives an indication as to which product is cheaper.

    However, as the APR might not include certain fees/charges, it cannot be relied on completely!


  • #3
    eman66
    Closed Accounts Posts: 602 ✭✭✭eman66


    Thanks. So all that matters really is the monthly repayment figure?


  • #4
    dotsman
    Registered Users, Registered Users 2 Posts: 3,636 ✭✭✭dotsman


    Depends! Is the term the same? Are there any one-off fees etc?, Any special terms/conditions etc?

    To truly look at a loan, you have to look at all the variables. A big one, that will always be quoted to you, is the Total Cost of Credit. Basically, this figure is how much the feckin' thing is going to cost you over the life of the loan.


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