1. What is APR?

The Annual Percentage Rate (APR) represents the true yearly cost of funds over the term of a loan, including fees and other loan costs. It provides a standardized way to compare loan offers.

2. How Does the Calculator Work?

The calculator uses the following formula:

Where:

• \( Total\ Cost \) — Total amount repaid (principal + interest + fees)
• \( Principal \) — Original loan amount
• \( Days \) — Loan term in days

Explanation: The formula calculates the annualized cost of borrowing as a percentage of the principal amount.

3. Importance of APR Calculation

Details: APR helps borrowers compare different loan offers on an equal basis, as it accounts for both interest rate and any additional fees charged by the lender.

4. Using the Calculator

Tips: Enter the total amount you'll pay back (including all fees), the original loan amount, and the loan term in days. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How is APR different from interest rate?
A: Interest rate doesn't include fees, while APR does. APR gives a more complete picture of loan costs.

Q2: What is a good APR?
A: This depends on loan type and creditworthiness. Generally, lower is better. Credit cards typically range from 12-30%, personal loans 6-36%.

Q3: Does APR account for compound interest?
A: This simple formula doesn't account for compounding. For loans with compounding, more complex calculations are needed.

Q4: Why use 365 days?
A: This annualizes the rate based on a standard year. Some lenders may use 360 days.

Q5: Can APR be negative?
A: Normally no, unless the lender is paying you to borrow (which is extremely rare).