Car Loans - What's the difference between an Interest Rate & APR?

Summary

In this video, Danny See Him explains the difference between an interest rate and an APR on a car loan. He clarifies that the interest rate is the cost to finance a vehicle without fees, while the APR includes additional fees like origination fees. To get the best deal, always compare APRs as they reflect the total cost of financing, including fees.

Takeaways

• 📈 The interest rate is the cost to finance a vehicle without fees.
• 🔢 APR stands for Annual Percentage Rate, which includes the cost to finance a vehicle with additional fees.
• 💰 The APR is always higher than the interest rate because it includes loan processing fees.
• 🏦 Origination fees are the charges by banks to process the loan, which are added to the interest rate to calculate APR.
• 🔎 When comparing car loans, use the APR to get a true comparison of total costs.
• 📋 The bank's advertised interest rate does not include the fees, which are factored into the APR.
• 🏷️ APR is the key number to compare when shopping for car loans to understand the total cost.
• 📊 An example is given comparing two banks with the same interest rate but different origination fees, resulting in different APRs.
• 📈 Bank A with a lower origination fee offers a lower APR, making it a better deal despite the same interest rate.
• 👍 The video encourages viewers to compare APRs to ensure they get the best deal on their car loan.
• 📺 The channel provides useful content and encourages viewers to like, subscribe, and check out more videos.

Q & A

What is the main topic of Danny's video?

The main topic of Danny's video is explaining the difference between an interest rate and an APR (Annual Percentage Rate) on a car loan.

What does the interest rate on a car loan represent?

The interest rate on a car loan represents the cost to finance your vehicle without including any fees.

What is the full form of APR and what does it include?

APR stands for Annual Percentage Rate, which reflects the total cost to finance your vehicle, including additional fees that the bank may charge.

Why is the APR always higher than the interest rate advertised by a bank?

The APR is always higher than the advertised interest rate because it includes the additional fees such as origination fees that the bank charges to process the loan.

What are origination fees in the context of a car loan?

Origination fees are the charges that banks impose to process your car loan, which are separate from the interest rate.

Why should you use the APR when comparing car loan rates between banks?

You should use the APR when comparing car loan rates between banks because it includes all fees and gives you a more accurate picture of the total cost of the loan.

How does Danny illustrate the difference between interest rate and APR using an example?

Danny uses an example where two banks offer the same 6% interest rate for a car loan but have different origination fees, resulting in different APRs, to show how APR is a better indicator of the total cost.

In Danny's example, which bank offers a better deal according to the APR?

In Danny's example, Bank A offers a better deal with an APR of 6.16% compared to Bank B's 6.82%, despite both offering the same 6% interest rate.

What advice does Danny give for shopping for the best car loan rate?

Danny advises to always compare APRs when shopping for the best car loan rate to ensure you are getting the best deal from the bank.

What does Danny encourage viewers to do if they find the video useful?

Danny encourages viewers to hit the like button and subscribe to the channel if they find the video useful.

What does Danny promise to his viewers at the end of the video?

Danny promises to come out with more content in the next coming days and encourages viewers to stick around for that.