Annual Percentage Rate

What is an APR?The term Annual Percentage Rate of Charge (APR), sometimes corresponding to a nominal APR and sometimes to an effective APR (or EAPR), describes the interest rate for a whole year (annualized), rather than just a monthly fee/rate, as applied on loan, mortgage loan, credit card loan etc., it is a finance charge expressed as an annual rate.

Types of annual percentage rate Fixed annual percentage rate: Fixed annual

percentage rate remains fixed and does not change during the life of the loan. The fixed annual percentage rate does not change with the change in the index.

Variable annual percentage rate: Variable annual percentage rate is the rate which does not remains fixed and changes with the change in the index interest rate. Variable APR = Reference rate (Index rate) + Margin. As the reference rate increases or decreases, the annual percentage rate changes.

 

Credit card annual percentage rate A credit card annual percentage rate is the interest one

pays on the amount of borrowings. If we pay the balance in full each month there is no requirement to pay the interest.

There are different types of credit card annual percentage rate:

1. Purchase APR2. Balance APR3. Cash advance APR4. Penalty APR

Mortgage and car annual percentage rate

Mortgage loan APR is an annual percentage rate where we are charged not only with the interest rate but also with the brokerage fees and other charges that may have incurred in getting the mortgage. Therefore, annual percentage rate is always higher than the interest rate.

An annual percentage rate for a car loan is the interest we have to pay on the amount of borrowing which also includes the fees.

APR vs Interest rate An interest rate, or a nominal interest rate, refers only to

the interest charged on a loan, and it does not take any other expenses into account. In contrast, APR is the combination of the nominal interest rate and any other costs or fees involved in procuring the loan. As a result, an APR tends to be higher than a loan's nominal interest rate

Formula for APR APR = (Annual Cost of finance on Total loan

amount/Original loan amount) *100

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