Loan interest rate

Because not all loans carry equal interest, we want you to understand exactly what you're paying for credit, particularly since uninformed decisions can lead to financial jeopardy. The first term is an annual percentage rate (APR).

A monthly interest rate of 1.5 percent for a loan may seem reasonable enough, but a consumer needs to know the APR before he or she can compare lenders. Some lenders promote introductory offers of loans at what are called "teaser" rates. These rates are relatively low, but are soon replaced with much higher rates.

When comparison shopping for a vehicle, house or a credit card, you should seek out the lowest APR possible and lock it in place if possible. In the case of credit cards, though, you need to add other factors into the equation such as length of grace period, fees, late payment penalties and potential increases in the interest rate with relatively little warning.

If your interest rate is tied to an economic index, as is the case with an adjusted-rate mortgage, then the rate can rise or dip. With a home loan, the ideal situation is for the lender to guarantee the best rate, so that you can avoid being locked into a relatively high rate at a time when rates are going down.

You may clarify terms with potential lenders so that comparisons are viable. Does the fixed rate hold true for the entire length of the loan? Or is the lender really talking about a fixed rate for just part of the loan period? Is there a relatively low interest rate period followed by a balloon payment?

Before purchasing a home, you'll want to understand how many points are involved in the transaction. One point represents one percent of the loan's face value. With any loan, you'll want to study tax laws to see if you can't deduct the interest.

Some loans such as certain home equity loans require interest-only payments. Although they're fine during times when a consumer might be trying to stave off bankruptcy or foreclosure, these payments never reduce the principal.

This article is provided for general guidance and information. It is not intended as, nor should it be construed to be, legal, financial or other professional advice. Please consult with your attorney or financial advisor to discuss any legal or financial issues involved with credit decisions.