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Credit Card APR Calculator

APR Formula:

\[ APR = \frac{(I + F)}{P} \times \frac{12}{T} \times 100 \]

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1. What is the APR Formula?

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.

2. How Does the Calculator Work?

The calculator uses the APR formula:

\[ APR = \frac{(I + F)}{P} \times \frac{12}{T} \times 100 \]

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.

3. Importance of APR Calculation

Details: APR is crucial for comparing credit card offers as it reflects the true cost of borrowing. Lower APRs mean less expensive credit.

4. Using the Calculator

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.

5. Frequently Asked Questions (FAQ)

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.

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