INTEREST RATES AND APRs
Transcript
Welcome to Knowledge for College brought to you by Chase, and thanks for joining us. This series of videos provides valuable information on the many important steps of going to college and financing an education.
Hi, I’m Chelsea Richardson. If you’re considering student loans, you may be confused about the different Interest Rates and APRs, or Annual Percentage Rates, that are offered. Ken Butler will shed some light on these topics.
The financial aid process can be really confusing. There’s so much information—words and terms that may be unfamiliar to you—but it’s in your best interest to know what they all mean. Then you can make the best decision when choosing a student loan.
Two key terms you'll want to understand are interest rates and APRs, or Annual Percentage Rates.
Interest is the amount you're charged for borrowing money. It’s what you pay for using someone else’s money to pay for college, like a student loan. Interest is usually shown as a percentage of the principal. That's the dollar amount that you’re borrowing. And that percentage is called the interest rate. Interest rates are important because the higher the interest rate, the more you'll pay for borrowing money.
Some interest rates remain the same until the loan is paid off. These are "fixed” rates. And some interest rates may change with market conditions. These are called "variable" rates. But you can’t just look at interest rates when you’re shopping for a student loan because lenders set interest rates differently.
They may base their variable interest rate on the Prime Rate Index or on LIBOR, the London Interbank Offered Rate. Some lenders may also charge fees, such as an origination fee, and that may affect the total cost of the loan.
Without a common way to compare loans, you’d be comparing apples to oranges. That's where the APR comes in.
The APR is the annual cost of the loan with any fees included and expressed as a percentage. The APR makes it easier for you to compare a loan to a loan. Your APR may be affected if you choose to defer payments until after graduation. When you look at repayment examples and APRs, be sure to compare them with a deferred payment option.
While the APR is a helpful tool, it’s just one of the things to consider before you borrow. Make sure that you know if there are any application or loan fees. And find out how long you’ll have to repay the loan too.
The more you know, the better off you’ll be when deciding which student loan is
right for you. For more information about interest rates and APRs, visit FederalReserveEducation.org
and look under the personal financial education tab.
Knowledge for College is brought to you by Chase to help you better understand college financing. If you have any questions on your specific financial situation, consult your financial advisor or the financial aid office of your school.
APR
The Annual Percentage Rate (APR) is the effective interest rate when the origination fee and interest charges are included, considering the repayment plan and deferment options. The APR may increase if the interest rate increases.
Interest
Interest is the amount (usually a percentage of the principal) you will be charged for borrowing the money. The interest rate can remain the same for the life of the loan (fixed interest), or it can change based on market conditions (variable interest), depending on the terms of the loan.
This information was correct as of 11/01/08 and is subject to change. Contact Chase for the most up-to-date terms
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