1. What is APR?

APR (Annual Percentage Rate) represents the true annual cost of borrowing, including interest and fees. It provides a standardized way to compare loan offers by accounting for all borrowing costs.

2. How Does the Calculator Work?

The calculator uses the standard APR formula:

Where:

• \( Interest \) — Total interest paid over loan term
• \( Fees \) — Any additional fees charged by lender
• \( Loan\ Amount \) — Principal amount borrowed
• \( Days \) — Duration of loan in days

Explanation: The formula converts the total cost of borrowing into an annualized percentage rate, making different loan terms comparable.

3. Importance of APR Calculation

Details: APR is crucial for comparing loan offers, understanding true borrowing costs, and complying with financial disclosure regulations (like Truth in Lending Act).

4. Using the Calculator

Tips: Enter all costs (interest and fees) in dollars, loan amount in dollars, and term in days. Ensure all values are positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between APR and interest rate?
A: Interest rate only reflects borrowing costs from interest, while APR includes all loan costs (fees, points, etc.).

Q2: Is a lower APR always better?
A: Generally yes, but also consider loan features, prepayment penalties, and your repayment timeline.

Q3: Why use 365 days in the formula?
A: This annualizes the rate based on a standard year. Some lenders may use 360 days.

Q4: How does loan term affect APR?
A: Shorter terms typically have higher APRs for the same fees because costs are spread over less time.

Q5: Does APR account for compounding?
A: This simple APR calculation doesn't. For compounding loans, more complex formulas are needed.