1

Understanding APR: A Key Factor in Borrowing

Name

Institution

Course

Professor

Date
 2

Concept Introduction

In order to submit a loan application, one has to understand APR and how it is

determined. The Annual Percentage Rate can express the total cost of a loan as a single

number. When evaluating various loan interest rates, borrowers should consider Annual

Percentage Rates (APR). An Article on APR was featured by The Wall Street Journal

consumer section explaining how to use APR for responsible borrowing and debt

management. The first paragraph explains the meaning of APR and why it is essential to fully

understand APRs before applying for a consumer loan. Buy Side of the (Wall Street article.,

2022) clarifies the difference between interest rate and annual percentage rate (APR), which

includes the total cost of the lender.

Article Summary

Understanding annual percentage rates or APRs is essential to making intelligent

financial decisions. When deciding between various loan offers, it is vital to consider the

interest rate and the annual percentage rate (APR). This article emphasizes improving one's

credit score to qualify for lower interest rates. There are loans with fixed APRs that will not

change no matter what and loans with variable APRs that rise and fall with market conditions

or the prime lending rate. Consumers are cautioned to be wary of teaser rates and to carefully

read loan terms before applying for any loan, especially for credit cards with introductory 0%

APR promotions. The article provides helpful guidance on calculating APR from credit card

balances and interest rates. Because of compound interest, APY (Annual Percentage Yield) is

more advantageous than APR (Annual Percentage Rate).

Conclusion

The article consistently emphasizes the annual percentage rate (APR) as a crucial

factor for borrowers to consider. The advertised interest rate may not be the total cost of

borrowing, so borrowers should research. Keeping a high credit score to be eligible for
 3

interest rate discounts is also emphasized. The value of knowing the annual percentage rate

(APR) and using that knowledge to make smart financial decisions is also emphasized. The

article argues that understanding the annual percentage rate (APR) is crucial for anyone who

wants to manage their finances better and reduce borrowing costs.

 4

References

White M.C. (July 8, 2022). What Is APR? Buy Side from WSJ. A Dow jones company.