1. What is the APR Formula?

The APR (Annual Percentage Rate) formula calculates the yearly cost of credit as a percentage. It includes both interest and fees to give a more complete picture of borrowing costs than interest rate alone.

2. How Does the Calculator Work?

The calculator uses the APR formula:

Where:

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

Explanation: The formula combines all credit costs (interest + fees) relative to the principal amount, then annualizes it based on the loan term.

3. Importance of APR Calculation

Details: APR allows borrowers to compare different credit offers on equal terms. It's particularly important for credit cards where fees can significantly impact total costs.

4. Using the Calculator

Tips: Enter all amounts in Rs. For credit cards, use your average daily balance as principal. Term can be fractional (e.g., 0.5 for 6 months).

5. Frequently Asked Questions (FAQ)

Q1: How is APR different from interest rate?
A: APR includes both interest and fees, while interest rate only reflects the interest charges.

Q2: What's a good APR for credit cards?
A: As of 2023, average credit card APR is around 20%. Below 15% is 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: Why multiply by 12/T in the formula?
A: This annualizes the rate - converting the term-based rate to a yearly rate for comparison.

Q5: How accurate is this for credit cards?
A: This gives a simplified estimate. Actual credit card APR calculations may use daily compounding.