APR is the abbreviation for “Annual Percentage Rate of charge.” It is a calculation effective in comparing different loan and credit offers.

Important factors such as your possible interest rate, loan repayment term, frequency of instalments, timing of instalments and payment amounts are all included in the APR, as well as fees associated with each loan.

Before you sign an agreement, the lender you approach should be able to present you with their APR, which may differ from lender to lender. A general rule of thumb to consider is the following: the lower the APR is, the better the deal will be for you. This means that you should shop around for an institution with the best possible APR.

However, don’t stare yourself blind at the APR, since it does not necessarily cover all costs associated with a credit agreement. Missed payment charges and credit card balance transfer fees may not be covered in the APR. The APR is best applied when you're looking at credit of similar types, over similar periods. Always make sure that you can make repayments, and look at the total amount payable.

Consider asking the lender the following questions, if he offers a low APR:

Is the APR’s rate fixed or does it fluctuate?
Your payments could fluctuate if the rate is variable. However, if it is fixed interest, your payments remain fixed.

Are there charges not included in the APR?
Ask the lender whether default charges (for missing or late payments, or exceeding your credit limit) are covered in the APR. Other charges could include balance transfer fees. Make sure you understand what the extra charges are and whether you are in need of the services offered. Make sure you know what your payments will be and when you need to make payment.

What are the conditions tied to the credit or loan, and is it suitable?
Are you given a choice of when payments occur, and how you may make payments? Are you allowed to pay off the loan early if somehow you come by extra cash? If you do finish payment early, are there charges involved? Are you allowed to amend payment dates, if for instance you change jobs and your salary is paid in at a different time of the month? These are all questions that could help you make a better decision.

Are the monthly instalments affordable?
A large loan (with a high APR) could offer better repayment terms if it’s spread out over a longer period of time. You may be better able to handle such a scenario if you work on a tight budget. In the end, however, you’ll end up paying more.