How to Deal With High Annual Percentage Rate (APR)


You should not let a high APR stop you from getting the car that you like. Not all borrowers get the concept of how an APR works. APR short for Annual Percentage Rate, is the actual rate that a borrower is paying to a lender every year. In fact, when you are negotiating with a lender, it is recommended that you ask for the APR so that you will have a more detailed view of what you are actually paying every year, inclusive of all charges involved.

Sometimes, you make mistakes and end up with an APR that doesn’t suit your financial situation due to your credit score. However, there are effective ways of dealing with a high APR. Let’s lay out the facts on the impacts of APR on your payments and how to manage it.

Higher Payments due to Interest

As you might have already guessed, a high APR means bigger payments due to high interest. This might put you in a difficult position especially if you’ve been eyeing a specific car for months but the APR involved is giving you second thoughts. But it’s not the end, you can still consider many options so that you can afford the car that you really love.

Choosing an Extended Term Loan

One alternative that you can do is by extending the duration of your car loan. While short term is the ideal term, it is not for everyone because of the high monthly payments it incurs. With an extended term loan or long term loan, your total debt is divided by a bigger number of months thus resulting to a lower monthly obligation. This is one way of mitigating a high APR.

Consult Your Lender

Visit your lender and ask for possible options that you can do in order to lower the APR on your current loan. That is why it’s important to establish a good relationship with you lender. However, if your lender can’t help you, you can consider refinancing your car loan. For instance if you have recently shown that you are a more responsible payer, you might just find another lender that is willing to loan you money at a lower APR. You can consider this option and pay off your existing loan with this cheaper one. Just make sure that there are no prepayment penalties.

Let us show you a much clear perspective.

Table 1. APR and the monthly payments involved in an extended term loan.

Interest of APR Duration of the Loan Monthly Payments Involved
25 percent 5 years $380
7 percent 5 years $198

As you can see in Table 1, the payments involved are really significantly different. You would save a lot of money when you consider this option. There are a lot of options when dealing with a high APR, ask your dealer today for any recommendations. They are experts not only when it comes to car but also about vehicle financing.