Don’t Be Tricked By “Low APR Financing”
Calculate your own interest in your business, car and house loans.
Have you ever wondered why an advertisement for a car includes so many lines of footnotes at the bottom? Just like all things in life, informed individuals try to take advantage of individuals who are not informed. “0.9% APR Financing Available”, is a common term you hear in advertising when companies try to pitch you a “good financing deal”. In hopes of having a lower interest expense, individuals who do not understand how to calculate the actual interest expense will be baited into a different deal than they expected.
From cars, to mortgages, to business loans, APR is used as a standard and required with advertising. It tricks uninformed individuals into making decisions that are different from what they expect. The issue is that because of different compounding periods, the actual effective interest rate is much higher than you expect.
In my early twenties, I purchased a luxury car with my salary, and slowly understood that was the biggest mistake of my life as I was not ready. Interest expense was higher, and I could not afford the terrible purchase in general. The biggest shock to me was the difference in the quoted interest rate that I received, and here’s how you can be better prepared when it’s time to negotiate your loan’s interest rate.
