Annual Percentage Rate (APR)
Reflects the yearly cost of borrowing, including fees and interest.
Detailed Description
Annual Percentage Rate (APR)
What does APR represent?
APR represents the yearly cost of borrowing money, expressed as a percentage of the loan amount.
How is APR calculated?
APR is calculated using the formula: (Total Interest + Fees) / Loan Amount x (365 / Loan Term in Days) x 100.
What are the two types of APR?
The two types of APR are fixed APR, which remains constant, and variable APR, which can change based on market conditions.
Why is understanding APR important for borrowers?
Understanding APR helps borrowers compare loan offers and make informed financial decisions, as it reflects the total cost of borrowing.
What is a common misconception about APR?
A common misconception is that APR is the same as the interest rate, but APR includes additional fees and costs.