Background

• APR is an abbreviation for "annual percentage of rate." Annual percentage of rate is the term for the interest rate for an entire year. Simply put, this rate will describe the amount of money paid in addition to the initial balance owed. In the case of home loans, APR comes in two forms: nominal and effective. In credit card terms, APR also comes in two forms: variable and fixed rate.
  
  

How It's Calculated

• Nominal APR is calculated by the interest rate on each payment multiplied by the number of payments a year. Effective APR, however, is much more complex, taking any additional charges and fees into account during the compound interest calculation, enabling the consumer to see the actual rate over their balance that they are paying every year.
  
  

Low APR

• Low APR is in some ways a subjective term. Changes in the marketplace can have a very strong effect on how low APR rates are. Companies, depending on economic conditions, may be eager to lend and offer customers very low rates, while in more difficult times, they may be hesitant to lend and only offer high rates. Another factor is your own personal credit record. A good credit history will mean that companies are more willing to offer you a competitive rate; while a less desirable credit record may adversely affect the APR you are offered. There are a number of websites that allow you to compare rates from different companies, be it for home loans or for credit cards. Using one of these can help ensure that you get lowest rate possible.
  
  

Significance

• In a country that relies heavily on credit, APR is a very important part of each consumer's life. A high APR could mean that you are paying more for a loan or credit card than you have to be, essentially throwing money away. If you are able to get a better rate, that money is no longer being used to pay exorbitant finance charges and can be spent on something more useful.
  
  

Considerations

• When considering a credit card, it is important to know whether the APR rate given is fixed or variable. In a fixed rate, the APR should only change when there is a special situation, for instance after a late payment or after the approval of a request for a lower rate. However, in a variable rate, the APR can change at any time, making them potentially very costly for subscribers who do not always pay on time. Also, extremely low interest rates, such as 1 percent, are usually only introductory rates and will skyrocket after a few months.