1. What is an APR Calculator?

Definition: This calculator determines the Annual Percentage Rate (APR) for a loan based on the total cost, principal amount, and loan term.

Purpose: It helps borrowers understand the true cost of borrowing by expressing it as a yearly rate.

2. How Does the Calculator Work?

The calculator uses the formula:

Where:

• \( APR \) — Annual Percentage Rate (%)
• \( C \) — Total cost of the loan (USD)
• \( P \) — Principal amount borrowed (USD)
• \( n \) — Loan term in days

Explanation: The formula calculates the daily rate, annualizes it by multiplying by 365, and converts to percentage by multiplying by 100.

3. Importance of APR Calculation

Details: APR provides a standardized way to compare loan costs, including interest and fees, across different lenders and loan terms.

4. Using the Calculator

Tips: Enter the total cost (including fees), principal amount, and loan term in days. All values must be > 0.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between APR and interest rate?
A: APR includes both interest rate and any additional fees, giving a more complete picture of loan cost.

Q2: How does loan term affect APR?
A: Shorter terms typically result in higher APRs for the same fees, as costs are spread over less time.

Q3: Should I use calendar days or business days?
A: Always use calendar days for APR calculations unless specified otherwise.

Q4: What costs should be included in total cost?
A: Include all interest payments, origination fees, and any other mandatory loan charges.

Q5: Why multiply by 365?
A: This annualizes the daily rate to show what the cost would be if maintained for a full year.