APR vs APY
APR vs APY
Is there a difference? The answer is… YES!
Let us start with APR. APR is Annual Percentage Rate. This is the finance charge on a loan over a one-year term expressed as a percentage. When taking out a loan such as a mortgage, credit card, personal or auto loan, you are going to get an APR. Talk to your loan representative and make sure you understand how much you are paying in interest. A lower rate means lower cost over the life of your loan. A great tip to save money on interest is to put a little more money towards your payments each month when you can. This will help you pay less interest by the time you pay off your loan.
Now let’s talk about APY, Annual Percentage Yield. This is the yearly interest earnings that you receive on an investment or saving account, certificates of deposit, and money market accounts. Instead of owing interest, you receive it. The higher the APY is the greater amount of interest you can earn. Different financial institutions compound the annual percentage yield at different time periods. Some may compound interest daily; others may compound monthly. The more frequently your interest compounds, the higher your APY will be.
The bottom line is to make sure you understand APR vs APY. This will help you determine as the consumer where to borrow money from and where it is best to save your money.
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