Annual percentage rate (APR)

What is APR?

The annual percentage rate (APR) is the annualized interest rate that you are charged on a loan, credit card, or other line of credit. The APR is the rate at which your interest accrues and is added to your outstanding balance. In other words, it is the cost of borrowing money, expressed as a percentage of the amount borrowed. For example, if you borrow $100 at an APR of 10%, you will owe $110 at the end of the year. The APR is one way to compare different financial products, such as credit cards, loans, and lines of credit.

How is APR calculated?

The APR is calculated by taking the interest rate and adding any fees that are charged by the lender, such as origination fees or closing costs. The APR is then annualized, or expressed as a percentage of the amount borrowed that you will pay each year. For example, if you borrow $100 at an interest rate of 10% and are charged a $5 origination fee, your APR would be 10.5%.

What are the benefits of APR?

The primary benefit of APR is that it allows you to compare different financial products on a level playing field. For example, if you are considering two different credit cards, one with an APR of 15% and one with an APR of 20%, the card with the lower APR will be cheaper to carry a balance on. The APR can also be helpful in negotiating with lenders, as they are often willing to lower the APR if you threaten to take your business elsewhere.

What are the drawbacks of APR?

The main drawback of APR is that it can be confusing and difficult to calculate. Additionally, the APR does not always reflect the true cost of borrowing, as it does not take into account any fees that may be charged by the lender. Finally, the APR is often higher than the interest rate, so it is important to be aware of this when comparing financial products.

How can I use APR to compare different financial products?

When comparing different financial products, it is important to compare the APR rather than the interest rate. This is because the APR includes any fees that may be charged by the lender, and is therefore a more accurate reflection of the true cost of borrowing. It is also important to keep in mind that the APR is often higher than the interest rate, so be sure to take this into account when making your comparisons.

What should I be aware of when using APR?

When using APR to compare different financial products, it is important to be aware of the fees that may be charged by the lender. Additionally, the APR is often higher than the interest rate, so be sure to take this into account when making your comparisons. Finally, be sure to calculate the APR yourself, as it can be confusing and difficult to calculate.

What other terms are associated with APR?

There are a few other terms that are associated with APR, such as teaser rates and penalty APRs. Teaser rates are low introductory rates that are often used to lure customers into taking out a loan or credit card. However, these rates typically only last for a short period of time, after which the APR increases. Penalty APRs are high interest rates that are charged if you miss a payment or otherwise violate the terms of your loan or credit card. It is important to be aware of these terms when using APR to compare different financial products.

See more terms:

No credit checks or founder guarantee, with 10-20x higher limits.
This is some text inside of a div block.
Oops! Something went wrong while submitting the form.