1. What is the APR Calculation?

The APR (Annual Percentage Rate) calculation converts a monthly interest rate to an annual rate, providing a standardized way to compare credit card interest costs across different products and time periods.

2. How Does the Calculator Work?

The calculator uses the APR formula:

Where:

• \( r_{monthly} \) — Monthly interest rate (decimal)
• 12 — Number of months in a year

Explanation: This formula accounts for compounding interest over 12 months, converting a monthly rate to its equivalent annual rate.

3. Importance of APR Calculation

Details: Accurate APR calculation is crucial for understanding the true cost of credit, comparing different credit card offers, and making informed financial decisions about borrowing.

4. Using the Calculator

Tips: Enter the monthly interest rate as a decimal (e.g., 0.015 for 1.5%). The rate must be a non-negative value.

5. Frequently Asked Questions (FAQ)

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

Q2: Why use compounding in the calculation?
A: Compounding accounts for the effect of earning interest on previously accrued interest, which reflects how credit card interest actually accumulates over time.

Q3: How do I convert percentage to decimal?
A: Divide the percentage by 100 (e.g., 1.5% becomes 0.015).

Q4: Are there different types of APR?
A: Yes, credit cards may have different APRs for purchases, cash advances, and balance transfers, as well as introductory and penalty APRs.

Q5: Does this calculation work for daily compounding?
A: This specific formula is for monthly compounding. For daily compounding, the formula would be different, typically using 365 days instead of 12 months.