Use this calculator to determine the Annual Percentage Rate (APR) for your loan or credit. Enter the required financial information to evaluate the true cost of borrowing.
The Annual Percentage Rate (APR) is a crucial financial metric that represents the true cost of borrowing money. It includes not only the interest rate but also any additional fees associated with the loan. Understanding how to calculate APR is essential for consumers and financial professionals to make informed decisions about loans and credit offers.
The formula for calculating APR is:
$$\text{APR} = \left(\frac{\text{Total Cost of Loan} - \text{Principal}}{\text{Principal}}\right) \times \frac{365}{\text{Term in Days}} \times 100\%$$
Where:
Let's calculate the APR for a loan with the following terms:
Step 1: Calculate monthly payment
$$\text{Monthly Payment} = \frac{10000 \times (0.06 / 12) \times (1 + 0.06 / 12)^{36}}{(1 + 0.06 / 12)^{36} - 1} = $304.22$$
Step 2: Calculate total payments
$$\text{Total Payments} = $304.22 \times 36 = $10,951.92$$
Step 3: Calculate total interest
$$\text{Total Interest} = $10,951.92 - $10,000 = $951.92$$
Step 4: Calculate total cost of loan
$$\text{Total Cost} = $10,951.92 + $200 = $11,151.92$$
Step 5: Calculate APR
$$\text{APR} = \left(\frac{11151.92 - 10000}{10000}\right) \times \frac{365}{1080} \times 100\% = 7.31\%$$
Therefore, the APR for this loan is 7.31%.
This diagram illustrates the components of the loan and the APR. The blue section represents the principal amount, the green section shows the total interest, the red section indicates additional fees, and the purple dashed line represents the APR.