Word of the Day Wednesday: APR
We take the 'E' in Massachusetts Educational Financing Authority very seriously, which is why we've created our new Word of the Day series. Each Wednesday, MEFA will feature a Word of the Day, in which we'll highlight a word (or sometimes a phrase) related to the college planning process. This summer, we'll focus on vocabulary related to college loans, and will highlight words you may come across on your loan application, solicitation disclosure, or a lender's website.
While learning financing vocabulary may not be at the top of your to-do list, educating families about paying for college is our passion. Our job here at MEFA is to help you figure out this process. Navigating the waters of financing your college education expenses, whether or not you decide to borrow, may be rough, murky, and even uneasy. But don't worry. We'll break it down for you in short, easy-to-understand parts.
We begin with today's Word of the Day, Annual Percentage Rate
The Annual Percentage Rate (often referred to as "APR") is the rate charged to consumers for borrowing funds from a lender. It reflects the total annual cost of borrowing money over the life of a loan, expressed as a single percentage number. This means it takes into account not only the interest rate charged, but also how long it will take to pay back the loan, and any fees required within your payment.
The calculation to determine the APR is a standard formula, and the U.S. Truth in Lending Act requires lenders to display the APR for each type of loan, thereby providing a standard percentage number that allows consumers to easily compare loan products.
So why does this matter?
According to the Consumer Financial Protection Bureau (CFPB), APRs matter because they provide a shorthand way for you to compare the cost of two or more loans on an "apples to apples" basis. It's always important to do your research and be an informed consumer.
As you review MEFA's new loan rates, you'll see our APRs listed right up front, providing you the true cost of borrowing each type of loan. Make sure you take note of the APR when comparing loan options.
Still have questions about APR? Ask them in the comment section below – we'll get right back to you with clarification. And remember to check back next Wednesday for our next Word of the Day!