1. What is APR?

APR (Annual Percentage Rate) represents the annual rate charged for borrowing or earned through an investment, expressed as a single percentage number that represents the actual yearly cost of funds over the term of a loan or income earned on an investment.

2. How Does the Calculator Work?

The calculator uses the APR formula:

Where:

• \( r_{monthly} \) — Monthly interest rate (decimal)

Explanation: This formula converts a monthly interest rate to an annual percentage rate by compounding the monthly rate over 12 months.

3. Importance of APR Calculation

Details: APR provides a standardized measure for comparing different loan or investment products, helping consumers understand the true cost of borrowing or the actual return on investment.

4. Using the Calculator

Tips: Enter the monthly interest rate as a decimal (e.g., 0.01 for 1%). The calculator will compute the corresponding APR.

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 loan amount, while APR includes both the interest rate and other charges or fees.

Q2: Can APR be less than the nominal interest rate?
A: No, APR is typically equal to or greater than the nominal interest rate because it includes additional fees and costs.

Q3: How does compounding affect APR?
A: More frequent compounding results in a higher effective APR compared to the nominal rate.

Q4: Is APR the same as APY?
A: No, APY (Annual Percentage Yield) takes compounding into account, while APR does not consider the effects of compounding within the year.

Q5: Why is APR important for borrowers?
A: APR allows borrowers to compare different loan offers on an equal basis, taking into account both interest rates and fees.