1. What Is APR?

APR (Annual Percentage Rate) represents the annual cost of borrowing money, including interest and fees. It provides a standardized way to compare different loan and credit card offers.

2. How Does The Calculator Work?

The calculator uses the APR formula:

Where:

• \( Interest \) — Total interest paid (in currency)
• \( Principal \) — Original loan amount (in currency)
• \( Days \) — Loan term in days
• \( 365 \) — Number of days in a year
• \( 100 \) — Conversion to percentage

Explanation: This formula calculates the annualized interest rate by scaling the actual interest paid over the loan term to a yearly basis.

3. Importance Of APR Calculation

Details: APR helps consumers understand the true cost of borrowing and compare different financial products. It's required by law to be disclosed in most consumer credit agreements.

4. Using The Calculator

Tips: Enter the interest amount in your local currency, the principal loan amount in the same currency, and the loan term in days. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between APR and interest rate?
A: Interest rate is the cost of borrowing the principal, while APR includes additional fees and costs, giving a more comprehensive view of the loan's cost.

Q2: Why use 365 days instead of 360?
A: Using 365 days provides a more accurate annual calculation, though some financial institutions use 360 days for simplicity in certain calculations.

Q3: What is a good APR?
A: Lower APRs are better for borrowers. Good APRs vary by loan type and creditworthiness, but generally below 10% is considered good for personal loans.

Q4: Does APR include compound interest?
A: This simple APR calculation assumes simple interest. For compound interest, more complex formulas are needed to account for compounding periods.

Q5: Can APR be negative?
A: Typically no, as it represents the cost of borrowing. However, in rare cases with certain financial products, negative rates can occur.