1. What is APR?

APR (Annual Percentage Rate) represents the annual cost of borrowing money, including interest and fees. It provides a standardized way to compare different credit card offers and loan products.

2. How Does the Calculator Work?

The calculator uses the APR formula:

Where:

• \( Total\ Interest \) — Total interest paid over the loan term
• \( Fees \) — Additional fees associated with the credit
• \( P \) — Principal amount borrowed
• \( T \) — Loan term in days

Explanation: The formula calculates the annualized cost of credit as a percentage of the principal amount, providing a comprehensive view of borrowing costs.

3. Importance of APR Calculation

Details: Understanding APR helps consumers make informed decisions about credit products, compare different offers, and avoid potentially expensive borrowing options.

4. Using the Calculator

Tips: Enter all monetary values in dollars, and the loan term in days. Ensure all values are positive numbers with principal greater than zero and term at least one day.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between APR and interest rate?
A: While interest rate only includes the cost of borrowing the principal, APR includes both interest and additional fees, providing a more comprehensive cost measure.

Q2: Why is 365 used in the formula?
A: 365 represents the number of days in a year, converting the daily rate to an annual percentage rate.

Q3: Are all fees included in APR calculation?
A: Most fees associated with obtaining credit are included, but some optional fees (like late payment fees) may not be included in the disclosed APR.

Q4: How does APR affect my monthly payments?
A: Higher APR means higher borrowing costs, which can result in larger monthly payments or longer repayment periods for the same principal amount.

Q5: Can APR change over time?
A: Yes, especially with credit cards that have variable APRs that can change based on market conditions or the prime rate.