1. What is APR?

APR (Annual Percentage Rate) represents the yearly cost of borrowing money, including fees and other loan costs. It's a more comprehensive measure than the interest rate alone because it includes other charges.

2. How Does the Calculator Work?

The calculator uses the APR formula:

Where:

• \( periodic\_rate \) — The interest rate per compounding period (as decimal)
• \( n \) — Number of compounding periods per year

Explanation: The formula converts a periodic interest rate to an annual rate by accounting for compounding effects.

3. Importance of APR Calculation

Details: APR allows borrowers to compare different loan offers on a standardized basis. It's required by law to be disclosed in most consumer credit transactions.

4. Using the Calculator

Tips: Enter the periodic rate as a decimal (e.g., 0.01 for 1%) and the number of compounding periods per year (e.g., 12 for monthly).

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 amount, while APR includes the interest rate plus other charges like fees.

Q2: Why is APR higher than the interest rate?
A: APR includes additional fees and costs associated with the loan, making it typically higher than the base interest rate.

Q3: How does compounding affect APR?
A: More frequent compounding (e.g., monthly vs. annually) results in a higher effective APR due to compounding effects.

Q4: Is APR the same as APY?
A: No, APY (Annual Percentage Yield) accounts for compounding within the year, while APR typically does not.

Q5: When is APR not required to be disclosed?
A: Certain loans like mortgages may have different disclosure requirements, but most consumer credit requires APR disclosure.