APR Formula:
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The APR (Annual Percentage Rate) formula calculates the true annual cost of borrowing, including interest and fees. It provides a standardized way to compare different credit offers.
The calculator uses the APR formula:
Where:
Explanation: The equation combines all costs of borrowing (interest + fees) relative to the principal amount, then annualizes the rate based on the loan term.
Details: APR is crucial for comparing credit card offers as it reflects the true cost of borrowing. Lower APRs mean less expensive credit.
Tips: Enter all amounts in dollars. The principal and term must be greater than zero. For credit cards, use your average daily balance as principal.
Q1: What's the difference between APR and 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 rates range from 15-25%. Rates below 15% are considered good, while above 25% is high.
Q3: Does APR include all fees?
A: It includes most mandatory fees but may exclude penalties or optional services.
Q4: How does credit card APR compound?
A: Most credit cards use daily compounding, which this calculator accounts for in the annualization.
Q5: Can APR change after getting a card?
A: Yes, most cards have variable APRs that can change with the prime rate or your creditworthiness.