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This episode is a business coaching episode that teaches about annual percentage rates.

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Featured Coaching Excerpt - Notes & Transcript, Part 1
  • Lesson Nugget: An APR takes into account any fees that may be assessed with the loan, so that you can determine the interest rate you will be paying back over the term of the loan on an annual basis.
  • Annual Percentage Rate (APR): This is the true annual interest rate payable for a loan in one year taking account of all charges made to the borrower. This includes compound interest, discount points, commitment fees, and mortgage insurance premiums. This also takes into account the time at which the principal is repaid (especially when payments of principal are made in installments throughout the year).

real estate videos on an alternative to Lynda.com

-We are here on Thrive15.com, an alternative to Lynda.com, Michael no-real-estate-topic-is-too-obscure Burer, talking about the annual percentage rate, otherwise known as APR. The people in the know, they'll just call it APR.

MICHAEL: APR.

-If you're really in the know, you might just call it , like , "A-purr." I don't know. So now we're going to go ahead and read the definition-- I say we-- I'm going to read the definition. And then I would like for you to go ahead and provide us with an ample example of what this means. So here we go.

"This is the true annual interest rate payable for a loan in one year, taking account of all charges made to the borrower. This includes compound interest, discount points, commitment fees, and mortgage insurance premiums. This also takes into account the time at which the principal is repaid, especially when payments of principal are made in installments throughout the year." What? Can you give you an ample example? What does this mean?

-So APR is used to compare two different loans. You may have one lender say, I'm going to give you a great loan, and it's at 10% interest. And you may have another lender say, I'm going to give you a loan that's 5%, but you've got to pay all these fees up front-- maybe an origination fee. And then maybe you've got to pay fees on the back end-- exit fees. And so it's difficult to compare the two loans, what you're really paying.

Basically, an APR is a way of adding all those costs together-- the origination fee, exit fee, any other kind of fees-- dividing it all by the term of the loan, so you can annualize that interest rate. And, effectively, compare two different loans that may have a different cost.

-So if you're talking to somebody-- let's say I'm a Thriver, and I'm trying to buy a building. And I'm trying to find financing and all this. And one guy's just giving me all these little fees-- little nickel and dime, here, there. Here's a fee. There's a fee. Can I just ask, then, hey, I want to see the APR? Is that a reasonable request?

-It is, especially for a consumer loan. I mean, definitely in residential loans. In commercial loans, APR isn't as used or quoted as often.

INTERVIEWER: But you have to figure that don't you?

-But you would want to, when you-- yes, when you would want to compare the effect of cost between two different loans to evaluate which one's better.

-As a CFO guy, do you do this often, where you have to add up all this stuff, and figure out what it is?

-Yeah, we definitely-- when we're comparing two different loans, we would do this. We'd compare the costs.

-You know, just kind of go, well, we'll see.

-Yeah. Sometimes we flip a coin. That's often a good way.

-Awesome. Now, Michael, I was trying to think of a witty way to tell you how much I appreciate you. And all I can say is this. Actually, I appreciate you at the same level right now that the desert appreciates the rain.

-That's

pretty good.

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