How does APR (annual percentage rate) allow consumers to compare loans?
Say, an individual plans on buying a new car. The individual will finance the full $30,000 purchase. Two dealer offers two loan terms.
The individual has a 4% interest rate over 72 months. Here, the dealer charges a special $1,000 fee which gets included in the loan so you finance $31,000. The dealer says this relates to the special financing and no problem as it does actually relate to special financing. The APR for this loan equals 5.13%.
For the next, option you can get a 5% loan with no special financing charge having a APR of 5%.