1. What is APR?

APR (Annual Percentage Rate) is the annual rate charged for borrowing or earned through an investment, including fees and additional costs associated with the transaction. It provides a standardized way to compare different credit products.

2. How Does the Calculator Work?

The calculator uses the APR formula:

Where:

• \( I \) — Total interest paid (currency unit)
• \( F \) — Fees (currency unit)
• \( P \) — Principal amount (currency unit)
• \( T \) — Loan term (years)
• \( APR \) — Annual percentage rate (%)

Explanation: The equation combines all costs of borrowing (interest and fees) relative to the principal amount, then annualizes the rate based on the loan term.

3. Importance of APR Calculation

Details: APR provides a true cost comparison between different credit products, helping consumers make informed financial decisions. It's required by law to be disclosed in credit agreements.

4. Using the Calculator

Tips: Enter all values in the same currency unit. The principal amount and loan term must be greater than zero. For credit cards, use the average daily balance as principal.

5. Frequently Asked Questions (FAQ)

Q1: How is APR different from interest rate?
A: APR includes both interest rate and fees, giving a more complete picture of borrowing costs.

Q2: What is a good APR for credit cards?
A: As of 2023, average credit card APR is around 20%. Rates below 15% are considered good, while rates above 25% are high.

Q3: Does APR include compounding?
A: This simple APR calculation doesn't account for compounding. For more precise results, use an effective annual rate (EAR) calculator.

Q4: Why multiply by 12 in the formula?
A: This converts the rate from a monthly to annual rate (since there are 12 months in a year).

Q5: Can APR be lower than the interest rate?
A: No, APR is always equal to or higher than the base interest rate because it includes additional fees.