Annual Percentage Rate. The word can be daunting. Companies will use the acronym APR to lower our antennas and, for the vast majority of people, it’s worked. We don’t talk about interest and we most certainly don’t calculate how much we might actually be paying. This seemingly innocent percentage shown to you by credit cards and loan officers might turn out to be just the opposite, and while your investments and savings might provide you a strong foundation from which you can make purchases, it’s important to know how much you’re actually paying….and to whom. Here’s our top 3 interest rate predators and how to avoid them:
1. Credit Card Companies A common credit card APR can sour up into the 20’s! That means at any point, you might be paying 20% interest on your accumulated debt without even realizing it. This is why so many people get in trouble with credit cards and names such an Dave Ramsey and Suzie Orman can’t seem to get on board with these little pieces of plastic. Credit cards are a zero sum game and for every winner there must be a loser….pick your side wisely and stay away from racking up debt in this category.
2. Student Loans Although less harsh than credit card APR’s, student loans earn their spot on the list due to going after those who know the least. It’s hard enough to find a job after college much less worry about the interest rate on your debt. For some of us there’s nothing that we can do with the high interest due to certain job and income limitations but others may find hope in the multitude of options between private and government student loan repayment options.
3. Car Payments Car buying has become a more pleasant experience since the advent of the internet, but that hasn’t stopped dealerships from making their money in a variety of different ways. Financing their own vehicles has become an easy cash cow for dealerships who prey on people not noticing the APR on their leasing terms. Since a car is a collateralized debt there is very little risk to the company financing the purchase and should come with a lower interest rate. Too often this isn’t the case and qualified buyers are paying way more than they should.
Mortgages Mortgages are significantly different than the other 3 topics on this list due to the fact that mortgage rates are better than ever. The average mortgage has fallen from over 15% in the 80’s to under 5% in 2017, which doesn’t leave much room for negotiation when it comes to new homebuyers. However, it’s the older homebuyers that have a chance to take advantage of this one. If you purchased your home in the 90’s or early 2000’s, today might be a great day to look into refinancing at a lower rate and taking advantage of the added flexibility and cash flow.
As a society we tend to overestimate the cost of the product, and underestimate the cost of doing business. Knowing what your interest rates are and how they affect your payment can help you save significant amounts of money over time with just a small investment of time on your end. Talking to peers or professionals in the field can help ensure you are making the purchase and that your money isn’t going into someone else’s pocket unknowingly.
Securities and investment advisory services offered solely through Ameritas Investment Corp. (AIC). Member FINRA/SIPC. AIC and Creative Financial Partners are not affiliated. Additional products and services may be available through Eric T Croak or Creative Financial Partners that are not offered by AIC