You should care about the annual percentage rate (APR) on a loan because the APR is the amount the creditor is charging you annually for the money that you borrowed. This is how the creditor makes money from you on the loan. The creditor sets the APR based upon the risk involved with giving you a loan. If you are attempting to reestablish your credit after bankruptcy, you may pay a higher APR for an unsecured loan but the interest rate may be lowered if you have collateral to offer the creditor to help secure the loan, essentially lower the creditor’s risk.
Since the APR helps determine the amount the creditor will be collecting from you, you should shop around to find a better interest rate if the rate appears to be high. You have the right to ask questions or negotiate a better interest rate.+
Payday Loans Have Extremely High Interest Rates
Payday lenders are notorious for the extremely high interest rates. In some cases, they have been known to charge 300% on the money you borrow. This means that within one year, you would have paid back three times the amount that you borrowed to from the lender. For example, if you borrow $500 and do not pay the debt back until after one year, you would have to pay back at least $1,500. If possible, you should really stay clear of payday lenders because they make it almost impossible to pay them off quickly with such high APRs. If you have been trapped in payday loans, see our blog post “Bankruptcy Can Free You From Payday Loans”.
Some lenders try to make you just see one picture and that is what your monthly payment will be if you borrow a certain amount of money. Some lenders will avoid pointing out the total amount of money you will be paying back and for how long you will have to pay those monthly payments. Before signing any paperwork, it is important for you to ask questions if you feel they are not being answered by the creditor. Remember, to always read the fine print.
When you are in a position where you need to borrow money again after bankruptcy, you should care about the APR since it controls how much you will have to pay back to the creditor. Before signing the promissory note, ask the lender questions about the annual percentage rate if it seems high. The creditor may be able to lower the interest rate and/or you can just walk away and go to another lender who is willing to offer you a better interest rate.
Your best resource for receiving a fair interest rate is dealing with your financial institution where you have deposit accounts. Based upon the deposit relationship that you have established and how long you have been dealing with the financial institution, the lender may be more willing to cut you a break and offer you a lower interest rate.
At Bond & Botes, we are committed to helping our clients receive a fresh financial start. If you have been unable to pay a lender in full due to an extremely high APR, do not feel you can continue to meet your financial payments or you have fallen into a trap by a predatory lender, contact your local Bond & Botes office today for a free consultation.