APR vs. APY

• When shopping for loans, most consumers are trained to look at the APR (Annual Percentage Rate), when the number that best reflects total payment for the loan is the APY (Annual Percentage Yield). The APR is the projected annual interest rate, while the APY is the formula banks use to charge interest on already accrued interest charges.
  
  

Loan Terms

• A loan could have a great APR that's just introductory, or a loan with a fixed APR may have a high APY. When consumers look at a loan rate, they need to review the total cost of the loan based on the APY, according to Investopedia.
  
  For homes, low rates are anything below six percent APR and five percent APY. When it comes to cars, zero percent APR is considered the best possible rate, but a low rate is anything below nine percent.
  
  

Considerations

• APR and APY aren't an important factor on credit card loans, if you pay off the card at the end of each month, before interest accrues. They are a major factor for home loans, debt consolidation or home equity loans. The process of knowing what type of low rate you need varies based on the amount of time you finance a purchase. The longer your financing term, the more APY affects the rate.
  
  

Qualifying

• To qualify for a low-rate loan, a borrower must have an excellent credit rating. For homes and cars, this means credit scores well above 680. Traditionally, the better your credit, the more favorable the loan term.