1. What is APR?

APR (Annual Percentage Rate) is the annual rate charged for borrowing or earned through an investment. It represents the actual yearly cost of funds over the term of a loan, including any fees or additional costs associated with the transaction.

2. How Does the Calculator Work?

The calculator uses the APR formula:

Where:

• \( Interest \) — Total interest paid over the loan term ($)
• \( Fees \) — Any additional fees associated with the loan ($)
• \( Principal \) — Original loan amount ($)
• \( Days \) — Loan term in days
• \( 365 \) — Number of days in a year

Explanation: The formula calculates the annualized cost of borrowing by considering all costs and normalizing them to a yearly rate.

3. Importance of APR Calculation

Details: APR provides a standardized way to compare different loan offers and understand the true cost of borrowing. It helps consumers make informed financial decisions and avoid hidden costs.

4. Using the Calculator

Tips: Enter all costs in dollars, ensure principal is greater than zero, and days is a positive number. The calculator will provide the annual percentage rate.

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 only, while APR includes interest plus fees and other loan costs.

Q2: Why is APR important for borrowers?
A: APR allows borrowers to compare different loan offers on an equal basis, revealing the true cost of each option.

Q3: What is considered a good APR?
A: Good APRs vary by loan type and creditworthiness, but generally lower is better. Credit card APRs typically range from 12-25%, while mortgage APRs are usually 3-6%.

Q4: Does APR include compound interest?
A: Yes, APR accounts for compound interest and provides an annualized rate that reflects the true cost of borrowing.

Q5: Can APR be negative?
A: No, APR represents the cost of borrowing and should always be a positive percentage. Negative rates are extremely rare in consumer lending.