1. What is APR?

APR (Annual Percentage Rate) represents the true cost of borrowing, including interest and fees, expressed as a yearly rate. It allows consumers to compare different credit offers on an equal basis.

2. How Does the APR Calculator Work?

The calculator uses an iterative method to solve the APR equation:

Where:

• \( Payment \) — Monthly payment amount
• \( APR \) — Annual Percentage Rate (as a decimal)
• \( n \) — Total number of payments (term in months)

Explanation: The calculator finds the rate that makes the present value of all payments equal to the loan amount, using the Newton-Raphson method for numerical approximation.

3. Why APR Matters

Details: APR helps you understand the true cost of credit cards and loans. A lower APR means you'll pay less over time. Federal law requires lenders to disclose APR so consumers can make informed decisions.

4. Using the Calculator

Tips: Enter all fees charged by the lender, the total interest you'll pay, the loan term in years, and the original loan amount. The calculator will determine the effective APR.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between APR and interest rate?
A: Interest rate is just the cost of borrowing, while APR includes fees and other costs, giving a more complete picture of the loan's cost.

Q2: What is a good APR for a credit card?
A: As of 2023, average credit card APRs range from 15% to 25%. Rates below 15% are considered good, while rates above 25% are high.

Q3: How can I lower my credit card APR?
A: Improve your credit score, negotiate with your card issuer, or transfer balances to a card with a lower APR or introductory 0% rate.

Q4: Does APR include compounding?
A: Yes, APR accounts for compounding interest, though the exact method (daily, monthly) can vary by lender.

Q5: Why is my APR higher than my interest rate?
A: Your APR includes additional fees like origination fees or annual fees that your basic interest rate doesn't account for.