Category: Economy

Feeling the heat, Bank of America loosens criteria for small business pandemic loans

JPMorgan delays coronavirus business loans over litigation fears: Gasparino

Confusion and delays come with the small business loans program. FOX Business’ Charlie Gasparino with more.

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Bank of America said Saturday it’s expanding the list of customers eligible for a government-sponsored stimulus program designed to provide loans to small businesses hard-hit by the country's pandemic-related economic collapse.

The move follows intense criticism by Bank of America clients that the nation's second-largest lender was failing to properly process applications when the program commenced Friday morning.

In a statement, Bank of America said it had essentially scaled back the eligibility requirements to apply for loans that initially confused and angered many clients. The bank will now accept applications from small businesses if they had an individual or business checking account as of February 15 of this year as long as they have no business relationship with another bank.

As FOX Business has reported, Bank America clients say that they were turned away from the program if they didn't meet stricter requirements, such as having a business relationship and a credit card with the bank.

WEST VIRGINIA BANK CLOSES OVER 'LONGSTANDING ISSUES'

FOX Business reported earlier in the week the turmoil among the bank's customers, who said they were being improperly rejected from the $350 billion small business loan program.

The small business loans are considered an integral part of the $2 trillion government pandemic stimulus efforts since companies with less than 500 employees comprise nearly 50 percent of the American workforce.

The confusion at the bank level was heightened by a bottleneck inside the government on lending rules. The Treasury Department, the lead agency in overseeing the loan program, had not delivered guidelines to the banks until Thursday night, just hours before lending was set to start on Friday morning.

President Trump, however, praised Bank of America's efforts in a tweet later Friday afternoon, saying officials at the bank were doing a "great job" doling out the loans despite the widespread complaints.

It is unclear why the president singled out Bank of America among the nation's top banks other than the possibility that the company was the first major financial institution to open the program Friday morning, while others like JPMorgan Chase, began making loans later that day.

Small businesses have been ravaged by the economic slowdown that followed the country's massive quarantining to prevent spread of the novel coronavirus; the quarantines have continued as the death toll from the virus mounts, increasing unemployment to levels not seen since the Great Depression of the 1930s.

In order to prevent a complete economic collapse, the small business loans are designed to keep salons, restaurants and other such outfits open while retaining much of their workforce until the virus's spread abates and the economy can begin climbing back to normal.

WILL CORONAVIRUS BE THE END OF PAPER MONEY?

Under the plan, these businesses can apply for federal subsidized, low-interest loans for the lesser of $10 million or a percentage of their payroll. The government will pay off the loans made by the bank in their entirety if the business maintains its workforce.

A Bank of America spokesman would not comment on its about-face on eligibility other than saying the lender is operating with new criteria that will expand the number of clients eligible for loans.

"Now that SBA and Treasury have shared key implementation details and made important changes to the program, I expect banks of all sizes will participate and provide this important financial lifeline to small business customers," American Banking Association President Rob Nichols tells FOX Business

A spokesman for the Treasury Department declined to comment beyond highlighting the “unprecedented” nature of the program and pointing out that billions of dollars in loans were registered on its first day.

But even as Bank of America expands eligibility for its loans, other more systemic problems are cropping up across the program. And many have to do with the halting guidance coming from the Treasury Department.

People at Bank of America tell FOX Business that the Treasury guidelines on eligibility remain unclear.

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Another potential problem: Business owners have been given no insight into when they may actually get their hands on the money that they’ve been promised. And even bank officials aren’t completely sure what the answer is.

“We don’t want to fire people but we might not get this money in time,” one small business owner tells FOX Business. “There’s a deep lack of clarity about the timeline.”

As a result, while the bill is supposed to offer immediate economic relief, it could actually take weeks or maybe a month or more for money to reach the businesses in need of financing.

Other business owners tell FOX Business they worry the money isn't enough to support their current staff levels, since the loan terms are based on 2019 payroll numbers, and their workforce is significantly larger this year.

Of course, handing out $350 billion in small business loans — which is the target number in the government's pandemic economic relief effort — was never expected to run seamlessly.

According to one person familiar with the policymaking process, who spoke on the condition of anonymity, “there will be issues initially given the program was rolled out so quickly, but that doesn’t mean it will turn into Healthcare.gov," the controversial website created to handle President Obama's health-care initiative, which was plagued by technical errors during its launch in 2010.

Even as questions swirl about the effectiveness of the small business loan plan, White House officials are considering another round of small business loans, meaning possibly tens of billions of dollars more will be added to the program because the demand is so large.

By Saturday afternoon, several thousand applications had been processed for about $2 billion in loans, the Wall Street Journal reported, but that amount understates the size and scope of demand, people with direct knowledge of the matter tell FOX Business.

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US reminds airlines travelers are entitled to cash refunds amid coronavirus disruptions

The US Transportation Department on Friday issued a notice to airlines reminding them they are obligated to refund tickets when they cancel a flight or make a significant flight schedule change that passengers opt not to accept, but will not take any immediate action against airlines.

US and foreign airlines have canceled hundreds of thousands of flights and eliminated millions of seats in the wake of a massive falloff in travel demand because of the coronavirus pandemic.

The Transportation Department said it is receiving a rising number of complaints and inquiries from passengers seeking refunds. Earlier this week, nine Democratic US senators urged the chief executives of 11 major airlines to issue full cash refunds to customers who cancel their flights.

The department said the “longstanding obligation of carriers to provide refunds for flights that carriers cancel or significantly delay does not cease when the flight disruptions are outside of the carrier’s control.”

The department said it could take an enforcement action when airlines deny refunds when a “carrier cancels a flight, makes a significant schedule change, or significantly delays a flight to be a violation of the carriers’ obligation.”

But the department said that, given the massive crisis, it “will exercise its prosecutorial discretion and provide carriers an opportunity to become compliant before taking further action.”

Airlines must contact in a timely manner passengers who were given vouchers “to notify those passengers that they have the option of a refund” and they must update refund policies to make it clear that they give refunds after a significant schedule change or canceled flight.

On Friday, Delta Air Lines and Southwest Airlines both extended the amount of time travelers have to use unused travel funds to rebook travel for flights. Delta will give passengers up to two years to rebook flights that are or were scheduled through May.

Airlines for America, an industry trade group representing American Airlines and other major airlines, said earlier this week that “each airline has crafted an approach it believes will best address the concerns and interests of its passengers, crew and other stakeholders, including announcing travel policies to accommodate customers.”

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Some small business owners' coronavirus stimulus experience off to shaky start

JPMorgan delays coronavirus business loans over litigation fears: Gasparino

Confusion and delays come with the small business loans program. FOX Business’ Charlie Gasparino with more.

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President Trump says one of the nation's top banks is doing a "great job" complying with the federal government's new pandemic stimulus plan in handing out hundreds of billions of dollars in loans to small businesses; he even singled out one of the nation's largest, Bank of America, for its work getting small businesses the money they need to survive the economic fallout from the novel coronavirus.

But the people on the front lines of the $350 billion loan application process, the small business owners, say their experience has been far from great. FOX Business has been contacted by several small business owners who say the loan program — which officially began Friday — is suffering from a series of defects and that loan applications are being summarily rejected for arbitrary reasons. Others say they're getting the brush-off from their bankers who say they still don't have guidance from the federal government to begin the application process even though that guidance was made official Thursday night, according to Treasury Secretary Steve Mnuchin.

CORONAVIRUS CRISIS FORCES FIRST BANK TO CLOSE ITS DOORS 

Even more, small business owners say they find it odd that Trump in a tweet late Friday afternoon cited Bank of America for doing great work in handing out the loans. Bank of America may have been the first bank out of the gate to make the loans available to its customers Friday morning, but several business owners have contacted FOX Business through social media and other venues and said the bank found reasons to backlog their loan application or deny them altogether.

One small business owner wrote that Bank of America "is not processing our application because we don’t have a B of A credit card. This is such BS. We do all of our banking through them and they are limiting access to stimulus funds to my business because we don’t have a Credit card."

When contacted about these issues, a Bank of America spokesman declined comment but pointed to a memo circulated internally that said:

“In this first initial launch (of the small business loan program), we have focused on our full relationship clients first."

WILL CORONAVIRUS BE THE END OF PAPER MONEY?

A Treasury spokesman said, "Treasury and the Small Business Administration, in close coordination with the White House, have established an unprecedented $350 billion Main Street financial assistance program in just one week.  Billions of dollars in loans have been registered on the very first day of activity."

Of course, handing out $350 billion in small business loans — which is the target number in the government's $2 trillion pandemic economic relief effort — was never expected to run seamlessly. The $2 trillion bill was hastily cobbled together and passed on March 26 as lawmakers and the White House worried that the lockdowns to deal with the virus outbreak could lead to a severe economic recession, or worse. The early economic indicators show a dramatic slowdown in the US economy and unemployment rivaling levels not seen since the Great Depression.

Meanwhile, banks were on the forefront of a key piece of the plan in handing out government-backed loans to small businesses. Under the plan, the federal government will provide loans for banks to make available to small business, or outfits with less than 500 employees, with super-low interest rates. The loans will be forgiven and paid off by the government if the small business retains its workforce until the economy can resume possibly in the summer.

The program was considered key to the success of the virus relief package since small businesses employ nearly 50 percent of all working Americans, and they have been the hardest hit by the virus's impact on the economy, as salons, restaurants and other service-related companies have been shuttered laying off tens of millions of workers.

But questions immediately swirled about its effectiveness. The $350 billion size of the program seemed too small to meet the intense demand; as FOX Business reported, White House officials are considering another round of small business loans, meaning possibly tens of billions of dollars more will be added to the program.

Banks complained that even as the Friday deadline to start the loan program approached, the federal government didn't provide them guidelines on how to proceed. Those guidelines then came late Thursday, causing the nation's biggest bank, JP Morgan, to delay launching the loan program until later Friday afternoon. Other big banks, Citigroup and Wells Fargo, have yet to launch their programs as this story is published Friday.

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By Friday afternoon, several thousand loan applications were processed or about $2 billion in loans, the Wall Street Journal reported, but that well understated the size and scope of demand. Bank of America was among the first banks to begin the loan program Friday morning. By the end of business Friday, a spokesman said it had processed $7 billion worth of loans from 75,000 applications.

But according to small business owners who contacted FOX Business, its handling of the onslaught of loan applications was uneven at best. One small business owner indicated Bank of America and other banks simply refused to take applications on Friday in some parts of the country. Another said that Bank of America declined applications of customers who didn't have both a checking account and a credit card open in February of this year, as well as a broader banking relationship.

Those customers who meet all of those criteria will be given preference over those that meet just one or two, business owners tell FOX Business.

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Bank of America slammed over favoring small biz loans for existing customers

Bank of America said on Friday it has already received about 35,000 applications for federally backed small-business loans within hours of starting to accept them.

The second largest US bank by assets became the first major bank to accept applications for the massive small-business rescue program approved by Congress last week. But the bank was already being criticized on social media after its CEO said on CNBC that it was prioritizing existing customers.

“Speed is of the essence here for these types of small businesses,” Chief Executive Brian Moynihan said in a CNBC interview on Friday. “The money will start to go out the door once these applications are processed over the next short period of time.”

Small businesses, which employ about half of US private sector employees, have been hit hard during the outbreak of the new coronavirus, which has caused cities to shut down non-essential businesses. Many people are staying home, which has sharply cut into consumer spending.

Bank of America’s consumer transaction volume fell from an average of $60 billion a week to $40 billion through March, Moynihan said.

Seeking to bail out millions of small businesses and slow unemployment, Congress included $349 billion for small firms in its $2 trillion stimulus package passed last week. Small businesses will need to rely on banks to get the funds.

Banks have been scrambling to prepare for overwhelming demand for the loans while awaiting guidance from the government. As of Friday morning, competitors JPMorgan Chase, Citigroup and Wells Fargo were not accepting applications online.

“Wells Fargo is working as quickly as possible to be ready to assist small-business customers as part of the Paycheck Protection Program (PPP),” a spokesman said in a statement.

Bank of America is prioritizing processing applications for small-business clients that already have a borrowing relationship with the bank, Moynihan said.

“If you borrow from another bank … Please go back to them because they’re your core bank and they know you the best and can process you the fastest,” he said.

It has also drawn criticism from Florida Senator Marco Rubio, who chairs the Senate Committee on Small Business and Entrepreneurship. After hearing from a Bank of America customer who was denied a loan, he called the credit account stipulation a “a ridiculous requirement that isn’t anywhere in law,” in a tweet on Friday.

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H&M Q1 Profit More Than Doubles; Sees Loss-making Q2 Due To Covid-19 Crisis

Swedish retailer Hennes & Mauritz AB or H&M Group (HNNMY.PK,HMRZF.PK,HEN.L) reported Friday that its first-quarter profit after tax more than doubled to 1.92 billion Swedish kronor from last year’s 803 million kronor. Earnings per share were 1.16 kronor, up from 0.49 krona per share.

Excluding the effects of IFRS 16, profit after tax were 1.86 billion kronor in the latest quarter.

Gross profit increased 10 percent to 28.03 billion kronor, corresponding to a gross margin of 51.0 percent, up from 50 percent last year.

The H&M group’s net sales increased 8 percent to 54.95 billion kronor from 51.02 billion kronor last year. In local currencies, net sales increased by 5 percent.

In the second half of the quarter, sales were muted by the rapid outbreak of coronavirus, particularly in China where sales decreased 84 percent in February.

Excluding China, Hong Kong, Singapore, Macau, Japan and Taiwan, sales increased by 7 percent in local currencies.

Online sales increased 48 percent in Swedish kronor and 44 percent in local currencies.

Meanwhile, as of March 31, a total of 3,778 out of 5,065 stores were closed. Net sales in March 2020 decreased 46 percent in local currencies. Online sales in March 2020 increased by 17 percent in local currencies. Digital sales channels remain open in 47 of the group’s 51 online markets.

The company have taken various measures to mitigate the impact of the coronavirus. The board already said it is proposing to the 2020 AGM that the dividend is canceled.

The company is also reviewing the need for any redundancies. Senior executives have taken a temporary 20 percent pay cut.

Looking ahead, the company said the second quarter will naturally be very negatively impacted by the corona situation and will therefore be loss-making.

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How old do you have to be to get a credit card?

If you’re wondering about your chances of getting a credit card based on your age, here’s what you need to know. (iStock)

If you’re hoping to get a credit card on your own, you need to be at least 18 years old to qualify. However, there are some restrictions for consumers until they’re 21 years old, and teenagers under 18 can only get a credit card if it’s tied to an existing account.

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If you’re wondering about your chances of getting a credit card based on your age, here’s what you need to know.

Can you get an account if you’re under the credit card age limit? 

It’s possible to get a credit card in your name if you’re under 18, but it’s not the same as getting an account in your name. Instead, you can get added as an authorized user on a family member’s account (typically a parent), and you’ll receive a card in your name that’s tied to that account.

UNEXPECTED CREDIT REPORT ITEMS SHOWING UP? THIS COULD BE WHY

As an authorized user, you’re not financially responsible for any debt incurred on the main account, including charges you make with your card. That said, once you’ve been added as an authorized user on a credit card, that account’s entire history is added to your credit file, which can help you establish your credit history early on.

Of course, if your parent has missed some payments in the past or regularly carries a high balance, those negative items could hinder your chances of building a positive credit history. So check with your parents before you ask to be added to make sure you’re starting off on the right foot.

Credit cards for 18- to 21-year-olds

Once you’re 18 years old, you’re eligible to get a credit card on your own. However, it can be challenging to get approved, especially if you’re a college student.

That’s because credit card issuers are required by law to consider your ability to pay back any debt you incur with a credit card. If you’re a college student with just a part-time job or no job at all, your income may not meet an issuer’s required minimum.

Note, however, that you can also count scholarships, grants and regular allowances as income.

HOW THE FED'S EMERGENCY RATE CUTS AFFECT YOUR CREDIT CARD

Also, while student credit cards are designed with college students in mind, many of them still require some credit history, even if it’s limited. If you’ve never had the chance to build credit as an authorized user, you may have a hard time getting approved for a card on your own.

If you don’t have an established income or credit score, there are still some options available to you. For example, you can still get added as an authorized user on a parent’s credit card account. Also, some credit card issuers allow co-signers, so if one of your parents has a good credit history, they can apply with you as a joint account holder.

Finding the best credit card for 21 and up

If you’re 21 years old or older, you may have a better chance of getting approved for a credit card on your own, even if you’re still a college student. For example, you may have had more opportunities to build your credit history, especially if you took out student loans and have already started making payments.

The primary reason, however, is that the Credit CARD Act of 2009 allows borrowers who are 21 and older to claim any income to which they have a reasonable expectation of access on a credit card application. That includes:

  • Personal income
  • Income from a spouse or partner
  • Allowances and gifts
  • Trust fund distributions
  • Scholarships
  • Grants
  • Retirement fund distributions
  • Social Security payments

While you now have a longer list of sources you can use, it’s essential to claim only that income that you can prove exists.

BOOST YOUR CREDIT SCORE WITH THESE SIMPLE STEPS

In addition to your gross annual income, you’ll typically need to provide the following information on a credit card application:

  • Full name
  • Address
  • Phone number
  • Date of birth
  • Social Security number or individual taxpayer identification number
  • Source of income
  • Housing situation and monthly payment

To find the right credit card for you, start by checking your credit score. Search for cards that align with your credit score range, then consider each card’s features and how they match up with your preferences and spending habits.

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What to do if you're fired during coronavirus

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The coronavirus pandemic has created confusion for many employers and employees, and it can be an especially difficult time to seek help for employees who feel they've been unfairly terminated.

WHAT IS WORKPLACE RETALIATION?

Blaine Bortnick of law firm Rasko Klock told FOX Business that he would advise any employee who feels he or she was unfairly fired to take a beat.

"It varies from state to state, but generally speaking an employee has 300 days to file an Equal Employment Opportunity Commission charge," Bortnick said. "There’s no need to go and rush out tomorrow and file an EEOC charge. … You should have a dialogue with the company and gather the facts."

A man is fired from his job.

Workplace retaliation includes, but isn't limited to, the drastic action of firing. The EEOC protects most workers from forms of retaliation, including giving poor performance evaluations, demoting employees and even verbal abuse.

What to do

Employees considering filing an EEOC charge can visit this webpage:

.

Most employers with 15 or more employees must abide by Equal Employment Opportunity laws, which protect employees from being punished for asserting their rights.

CORONAVIRUS ESSENTIAL WORKERS RISK: WHAT IS HAZARD PAY?

Nothing about the coronavirus crisis has changed the basic rights of both employees and employers, Bortnick said.

Employers are still prohibited from using layoffs to get rid of an employee they would otherwise unfairly terminate, regardless of the coronavirus, Bortnick said.

Employees considering filing an EEOC charge can visit this webpage.

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"That issue arises all the time, before we ever heard of COVID-19," Bortnick said. "An extreme example an employer could not get away with would be firing 85% of women and only 5% of men because of COVID-19. When they're essentially doing the same job, you can't use COVID-19 as a coverup."

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Why debt among older Americans is going up

More seniors find themselves in debt entering retirement. (iStock)

While much has been made of millennials and their struggles with student loan debt, seniors are increasingly challenged by mounting financial burdens. The outstanding amount owed in 2019? An estimated $1.15 trillion, according to Policy Genius. Then numbers were similarly high for 60-something seniors whose collected debt was $2.14 trillion.

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Carrying that kind of debt entering retirement can make a sense of financial security harder to come by.

"Rather than enjoying their golden years, many of our older generation continue to work just to keep ahead of their bills," said Deacon Hayes, personal finance expert and founder of Well Kept Wallet. "In addition, some have either depleted their savings to pay off debt, or have no savings at all due to a lack of funds."

Here's a closer look at how student loans, mortgages and other debts are shaping retirement prospects for older Americans.

How much debt does the average retiree have?

Data from the Congressional Research Service offers a closer look at how much the typical elderly household, meaning aged 65 or older, is carrying. The median household debt, according to the numbers, is $31,050. But the real average debt clocks in at $86,797.

WHEN USING YOUR 401(K) TO PAY OFF DEBT MAKES SENSE

The bulk of that debt is mortgage loans associated with seniors' primary residences. The remainder is spread across other types of debt, including student loans, car loans, credit cards and home equity loans.

Student loans are one of the fastest-growing debt categories for seniors. According to an AARP report, those 50 and over owe 20 percent of the country's $1.5 trillion in outstanding student loans. The Federal Reserve Bank data shows that those aged 60 to 69 who are newly retired or poised to enter retirement have approximately twice as much student loan debt as seniors aged 70 and older.

Why is debt among older Americans increasing?

There are a number of factors that can account for the jump in debt levels for those entering retirement. The AARP report, for example, points to a growing number of parents and grandparents co-signing private student loans for their children and grandchildren. Co-signed debt can become burdensome in retirement if the student isn't chipping in anything toward payments.

WHO'S RESPONSIBLE FOR STUDENT LOANS IN DIVORCE?

Rising health care costs may also push debt levels up for some seniors. Those retiring before age 65, for example, may be relying on loans or credit cards to cover medical expenses if they're uninsured during the gap before they become Medicare-eligible.

Increases in the cost of living not matched by similar increases in wages are also a factor, said Hayes.

"College tuition, home prices and car sticker prices have more than doubled in the past 20 years," he said. "Income, on the other hand, has barely gone up at all to meet those higher costs."

The end result? Seniors who took on debt in their 40s or 50s to finance education or a basic standard of living are now carrying it into retirement.

How can seniors get out of debt? 

While retiring debt-free is an idealistic financial goal, it's not necessarily realistic for every senior. Instead, the focus should be on finding ways to manage and pay down debt as quickly as possible to minimize impacts in retirement.

WHY COLLEGE TUITION AND FEES ARE RISING FASTER THAN FINANCIAL AID

Hayes said this begins with making simple changes, such as carefully reviewing spending to eliminate unnecessary costs or, at the very least, finding ways to make them less expensive. Negotiating lower rates on car insurance or homeowner's insurance, for example, could free up additional money to put toward debt.

Refinancing debt is another cost-saving measure that could accelerate a debt payoff in retirement. Seniors who still have student loan or mortgage could refinance at a lower rate, saving money on interest while making monthly payments more manageable.

Then there are more extreme options, such as starting a side hustle or business to make extra money for debt repayment or delaying retirement by a few years until the debt is paid off. The most important thing for seniors is to be proactive in tackling debt so it doesn't cloud their financial picture in retirement.

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WarnerMedia names Jason Kilar new CEO

AT&T’s TV and film entertainment division, WarnerMedia, has tapped an executive with streaming experience to be its new chief as readies its launch of HBO Max next month.

Jason Kilar, 48, was previously the founding CEO of Hulu and a senior vice president at Amazon. He will report to John Stankey, AT&T’s president and chief operating officer, when he takes office on May 1.

Stankey, who held the role of WarnerMedia CEO in addition to the COO job at the firm’s corporate parent, had become a lightning rod figure within the entertainment unit, which operates HBO, Cartoon Network, CNN and Tuner Classic Movies, after AT&T acquired it through Time Warner and renamed it WarnerMedia in 2018.

Although he was instrumental in developing the company’s streaming service to compete with Netflix and Amazon, some WarnerMedia execs complained that Stankey — a longtime AT&T veteran — lacked entertainment experience.

As The Post has previously reported, Stankey’s management style also clashed with some people in the entertainment division, and he was blamed for popular defections, including former HBO chairman and CEO Richard Plepler, who left last February.

Kilar, by contrast, is a known entity in Hollywood. He was CEO of Hulu from its start in 2007 until 2013. He served in several leadership positions at Amazon from 1997 to 2006, and was co-founder and CEO of video streaming service Vessel from 2013 to 2017. He also served as a board member at DreamWorks Animation from 2013 to 2016, and Univision Communications from 2016 to 2020.

“Adding Jason to the talented WarnerMedia family as we launch HBO Max in May gives us the right management team to strategically position our leading portfolio of brands, world-class talent and rich library of intellectual property for future growth,” Stankey said Wednesday.

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APR vs. interest rate: What’s the difference?

Do you know the difference between the APR and the interest rate? (iStock)

If you’re in the market for a new loan or a credit card, understanding all the technical jargon tossed your way is essential. Knowing specific numbers will make it much easier for you to make a financial decision that works best for your particular circumstances.

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Many people believe that the APR and interest rate are interchangeable, but they’re not. While they are similar, the APR provides a little more information than just looking at the interest rate.

What is an APR?

The APR or Annual Percentage Rate is the total cost of your loan, including fees, represented in a percent. Charges factored into the APR can include mortgage insurance, loan origination fees, closing costs, and points. The APR does not consider any compounding factors.

To calculate an APR, lenders multiply the periodic interest rate by 365 days. Credit cards typically have a fixed APR, while some loans may have a variable APR. If your loan has a variable interest rate, that means it can change any time (depending on your other loan terms).

WHAT APR MEANS ON YOUR CREDIT CARDS AND LOANS

Lenders are not required to include all their fees in the APR, so make sure you ask your lender if they have additional charges.

The APR on a credit card and the APR on a mortgage loan won’t always operate the same way since the balance on your credit card could vary widely from month to month. Additionally, APRs for introductory periods, cash advances, and balance transfers all work a bit differently depending on your lender.

What is an interest rate?

Your interest rate is the cost of the loan over a year, without additional fees factored into the percentage. The interest rate determines your monthly payment.

What are the key differences between and APR and interest rates?

The most significant difference between an APR and the interest rate is that the APR offers a complete picture of how much a loan will cost, while the interest rate provides a shorter-term view.

VISA OR MASTERCARD: WHAT'S THE DIFFERENCE BETWEEN THE CREDIT CARDS?

Consumers can use one or both when comparing potential lenders. Comparing APRs will provide a bigger picture, but an interest rate can give you a quick view of possible monthly payments. The APR does not affect your monthly payments.

The market and your credit score determine your interest rate. Lenders are responsible for determining their APR, which is why they’re different from company to company.

For example, if you get an offer for a $300,000 home loan with a 5 percent interest rate, you’d pay $15,000 in interest over the first year. This amounts to about $1,250 per month. But, if your lender adds closing costs, loan origination fees, mortgage insurance, or other fees to your loan, that number could change. Let’s assume the total charges are $3,500. Your new loan amount is $303,500. When you divide that by the 5 percent interest rate, your new annual cost is $18,210. When you divide that number by your original loan amount ($300,000), your Annual Percentage Yield (APY) is 6.07 percent.

In this example, the difference between your interest rate and your APR is 1.07 percent.

Your monthly payment will stay the same as indicated by the interest rate, but the APR shows you the actual cost of your loan over time.

Why is APR usually higher than your interest rate?

The APR is most often higher than the interest rate because your interest rate only tells you how much the loan will cost, without considering additional fees.

While all these numbers can be confusing, looking at both the interest rate and the APR will help you score a better deal. If you’re comparing two lenders, a lower APR indicates fewer fees, which means a lower cost for you over the life of the loan.

Note: If you plan to pay the loan off faster than the loan terms, the APR won’t be as helpful when comparing offers because the APR assumes payment through the life of the loan.

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