1. What is Annual Percentage Rate (APR)?

The Annual Percentage Rate (APR) represents the annual rate charged for borrowing or earned through an investment, expressed as a percentage 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:

• \( Interest \) — Total interest paid or earned ($)
• \( Principal \) — Initial loan or investment amount ($)
• \( Days\ in\ term \) — Duration of the loan or investment in days

Explanation: The equation converts the interest rate for a specific period into an annual rate, allowing for comparison between different loan or investment terms.

3. Importance of APR Calculation

Details: APR provides a standardized way to compare different loan or investment options by accounting for the interest rate and the time period, helping consumers make informed financial decisions.

4. Using the Calculator

Tips: Enter the interest amount in dollars, principal amount in dollars, and the term length in days. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between APR and APY?
A: APR doesn't account for compounding within the year, while APY (Annual Percentage Yield) does. APY will typically be higher than APR for the same rate when compounding occurs.

Q2: Does this calculator account for fees?
A: No, this calculates a basic APR without additional fees. For complete loan comparisons, fees should be included in the interest amount.

Q3: Why use 365 days?
A: This provides the actual/365 day count convention. Some calculations might use 360 days for simplicity.

Q4: Can this be used for credit cards?
A: Credit card APRs typically include compounding and fees, so this simple calculator may not fully represent credit card APRs.

Q5: What's a good APR?
A: This depends on current market rates and your creditworthiness. Lower APRs are better for borrowers, while higher APRs are better for investors.