What Exactly is a Vehicle APR?
Buying a car can sometimes be very difficult, and the paperwork involved can be confusing at times. That’s why it’s very important to come to a dealership that really understands the car buying process.
When you throw in terms like car loans and APR it can get even more intimidating. Lucky for you, Lancaster Toyota knows the ins and outs of the car business and can explain it to the average Joe.
What is an APR?
The Annual Percentage Rate, or APR, is the total amount of interest paid on the financing of a vehicle, over the term of one year. It’s something the government put in place to protect you from some of the poor-faith car dealerships out there.
It sets the bottom line for how you should compare apples to apples rather than apples to oranges when price shopping. The law is called the Truth Lending Act of 1968, and it requires that all the pricing information for a year of owning or buying the car is included.
Is a Lower APR Always Better?
For example, let’s take a $20,000 loan and say that Bank A has a shorter loan period than Bank B, and Bank A also has a higher APR. Depending on the rates and other factors, your payments to Bank A would be $25,000 in total over 5 years, while you’d be paying Bank B $26,200 over the course of the loan.
While APR is a great annual comparison tool, it doesn’t tell the full story. A higher APR over a shorter term can end up costing you less money in the long run. APR only gives you a glimpse at an annual period; it concentrates on the fees and interest and ignores the full cost over time.