Posted on: 29th Oct, 2013 02:33 am
The Annual Percentage Rate (APR) was formulated to help the debtors choose the loan type which goes with their financial limitations, and to prevent lenders from hiding actual costs from the debtors. But today it has lost its significance. The Federal Congress made this information disclosure mandatory but forgot to define it officially. The lenders took advantage of this lapse and worked out the APR according to their own wish. Thus the very purpose failed.
With on-line loan applications have caught up fast with us, each software for computing APR is different and the lenders simply buy this ready-made product. They themselves are unaware of how APR is calculated, which costs it includes and which is not.
But you don't need to worry. If you want to get a correct estimate of the loan cost, you can request your lender for the Good Faith Estimate. This will be a better indicator. It will contain your loan cost as well as the specifications regarding the other costs like upfront costs.
With on-line loan applications have caught up fast with us, each software for computing APR is different and the lenders simply buy this ready-made product. They themselves are unaware of how APR is calculated, which costs it includes and which is not.
But you don't need to worry. If you want to get a correct estimate of the loan cost, you can request your lender for the Good Faith Estimate. This will be a better indicator. It will contain your loan cost as well as the specifications regarding the other costs like upfront costs.
To know all about good faith estimate, you can check out the given page: http://www.mortgagefit.com/blog/good-faith-estimate-reflects-the-costs-of-a-loan/ .