Credit 101: APR vs Interest Rates in Loans

Credit 101 APR vs Interest Advice

**I am not a financial adviser, nor by following these rules can I guarantee that will you see the same results, even if your situation is similar. Seek professional advice before making any final decisions. No information/ advice in this post is sponsored**

What is Credit? We hear all references to terms like: interest rate, APR, and of  course DEBT…  We know that a credit score is important, but how do you get credit when you have none?

Especially since bad credit is worse than not having any credit at all.. don’t worry I will explain 🙂

What is a Bad Credit Score?

Credit, and or, a credit score helps lenders decide whether to approve you for a loan. Your credit score is a three digit number that is calculated from several different sources.

If yours is 0 – need some milk. I have a post on how to help here.

Word to the Wise: Shoot for credit score of 740, that will open just as many doors as a perfect score: which is 850.

Real Life Example for why High Credit Scores Matter

You don’t have thousands in cash, nor good credit, but you need a car. When you go to a car dealership you will probably need to take out a loan. (I will explain further in the post how to get the best rates.)

The car you want costs 10,000, but let’s say you have no credit, which means no credit score either. You plan to make monthly payments, BUT the dealer has no idea whether you’ll be able to afford to pay on time. ( You want your notes to be around $270 or less; with good credit 700= they could be).

Your credit score would have given them an indication of how well you are with borrowing money and paying it back on time. But without a high score, now you will most likely have to take out a loan at a higher interest rate than someone with good credit 700+

So, if you take that loan let me explain a few of the terms you’ll most likely come into contact with.

Word to the Wise APR and Interest Rates are about the same concerning credit cards. Don’t be confused, a difference between APR and Interest rate only applies when referring to loans.

Credit Building Terms You Should know

  • Interest rate: is the annual (yearly) cost of a loan to the borrower (YOU)
  • APR: Annual Percentage Rate is the annual (yearly) cost of a loan to the borrower (you)  AND APR includes the total fees/charges. It will help you determine what all you’re actually paying for. **When you get a loan, you will pay back what you borrowed with interest; interest is determined by APR.**
  • Co-signer: a person who puts in writing that they are equally responsible for paying any amount borrowed, if you cannot pay. (Most people ask parents, but this is a big responsibility. If you can’t pay, the cosigner does!!)
  • Refinance:  To get lower rates you could refinance an amount you owe at your credit union/bank of choice. This means the bank would pay off the total/remainder you owe. The bank owns it, until you pay back the bank at a cheaper rate that they have refinanced for you.  The bank’s lower interest rates = lower notes


  • Remember: Your monthly payment will be based on your interest rate.

Never, never, go with ‘in-house financing.’ In House financing means the place you’re at (in our example the dealership) will go in house to their loan provider, who will write up your loan, and tell you how much they expect you to pay. Usually, this is bad news for your pockets because the interest rates are sky high

Why Are High Interest Rates Bad for you?

Any interest rate over 25.99 percent is high. It’s like paying an additional $0.25, per dollar. High interest rates will take you FOREVER to pay off. (Oh no, what if you’ve already went with in-house financing, you can always refinance at your bank. Credit Unions typically have the best rates. Trust me.)

Refinance- ^^From the ex above if you wanted to refinance your 10,000 car you would refinance at your credit union/bank of choice. If the credit union/bank decides to refinance, this means the bank would pay off the total you owe. The bank owns the car until you pay back the bank at a cheaper rate which = lower notes/ lower interest rates/ but longer time to pay off.

See how lower interest rates determine lower cost. 🙂

Personally, when I bought my car I had a co-signer and a credit score of 715. My car note was decided at $265; and I had no down-payment. I decided to finance my auto-loan with State Farm; and I’m under my mom’s insurance which helped save me over $200. I currently pay about $160.00 for my insurance.

Word to the Wise If you see APR% around 3.99%-15.99% this is a workable range, but obviously the lower the better. 25.99% and up, you just keep walking right on by. Trust me. Look at 25.99% as 0.25 added to each dollar you borrowed <<Those, or worse like 36.99% are the type of rates people with no, or bad credit may see… BUT keep reading there is hope, I promise.

You might be saying, “Well, what if I don’t have credit and want to grow my score. Do I only have to use credit cards to grow my credit score?” Nope.

Lol, there are several ways people with no credit can grow a credit history without credit cards.

Check out my post here for more info.

Other places that offer awesome lower interest rates:

Banks, specifically credit unions are your best friend.  There, I’ve seen percentages as low as 3%. Also, bundling auto loans with your insurance company, like I did, put me at 5.99%. This low number means my personal auto loan will be paid back with only a few hundred dollars extra tacked onto the end of my overall principal.

Whereas, if I had went with in-house financing I may have had 17.99%, that number would’ve added thousands to my overall principal.  I’ve seen individuals with no credit be quoted rates as high as 36.00% APR. Your damn grandchildren may as well drive this car too because you’ll still be paying for it.


Bring it all together…

  • If you don’t have any credit and want to build yours, check out my post here.
  • If you’re ready to dive in, remember, that the lower the APR the better. Max out at 15.99% to be safe.
  • Don’t fall for the APR trap door. After it times out you’ll be charged at that rate ^^
  • Banks, and Credit Unions usually give the lowest interest rates on loans.
  • NEVER, go with in-house financing. Double check with one of the options aforementioned. It will literally save you thousands. (If you’re already gone with in-house fiance, refinance at your bank)

I hope this helps guys, comment below if you have any questions 🙂

Bye for now, xoxo


Any wise words?

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