1. What is Annual Percentage Rate (APR)?

APR (Annual Percentage Rate) represents the true annual cost of borrowing money, including fees and interest. It provides a standardized way to compare loan offers by accounting for both the interest rate and any additional charges.

2. How Does the Calculator Work?

The calculator uses the APR equation:

Where:

• \( Fees \) — Additional charges beyond interest (USD)
• \( Interest \) — Total interest paid (USD)
• \( Principal \) — Original loan amount (USD)
• \( n \) — Term length in days
• 365 — Days in a year
• 100 — Conversion to percentage

Explanation: The equation calculates the daily cost of borrowing, then annualizes it to show the true yearly cost as a percentage.

3. Importance of APR Calculation

Details: APR helps consumers compare loan offers on equal footing. It's particularly important when comparing loans with different fee structures or compounding periods.

4. Using the Calculator

Tips: Enter all amounts in USD. Include all fees charged by the lender. The term length should be the actual number of days the loan will be outstanding.

5. Frequently Asked Questions (FAQ)

Q1: How is APR different from interest rate?
A: Interest rate only reflects the cost of borrowing the principal, while APR includes fees and other loan costs.

Q2: What's a good APR?
A: This depends on creditworthiness and loan type. Generally, lower is better. Rates below 10% are considered good for personal loans.

Q3: Does APR account for compounding?
A: This simple APR formula doesn't account for compounding. For compounding loans, a more complex formula is needed.

Q4: Why use 365 days?
A: This calculates the exact APR. Some lenders use 360 days which slightly increases the APR.

Q5: Is APR the same as APY?
A: No, APY (Annual Percentage Yield) accounts for compounding effects, while this APR calculation doesn't.