1. What is APR?

APR (Annual Percentage Rate) represents the true cost of borrowing by including both the interest rate and any additional fees charged by the lender. It provides a more comprehensive measure of loan cost than the interest rate alone.

2. How Does the Calculator Work?

The calculator uses the APR formula:

Where:

• \( interest\ rate \) — Annual interest rate in decimal form (e.g., 0.05 for 5%)
• \( fees \) — Total fees charged for the loan
• \( loan\ amount \) — Principal amount borrowed
• \( days \) — Term of the loan in days

Explanation: The formula converts the fee cost to an annualized percentage and adds it to the base interest rate.

3. Importance of APR Calculation

Details: APR allows borrowers to compare different loan offers on an equal basis, as it accounts for both interest rates and fees. Lenders are required to disclose APR to help consumers make informed decisions.

4. Using the Calculator

Tips: Enter the interest rate as a decimal (e.g., 0.05 for 5%), all fees associated with the loan, the principal amount, and the loan term in days. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between APR and interest rate?
A: The interest rate is the cost of borrowing the principal, while APR includes the interest rate plus other loan fees.

Q2: Why is 365 used in the formula?
A: This annualizes the fee cost to represent what the fees would equate to if paid over a full year.

Q3: Should I always choose the loan with the lowest APR?
A: Generally yes, but also consider loan terms, prepayment penalties, and your specific repayment timeline.

Q4: Does APR account for compounding?
A: This simple APR formula doesn't account for compounding. For more precise calculations with compounding, use the EAR formula.

Q5: Are all fees included in APR?
A: Most fees are included, but some (like late payment fees) may not be. Check with your lender for complete details.