The APR, the annual percentage rate, is associated with the interest rate that is established for 365 days based on a loan. The calculation of the percentage rate helps us to know the interest rate of all the expenses caused by a loan or a mortgage, among others. Financial institutions establish a series of commissions and costs for requesting an amount of money, and that is why it is so important to calculate the APR rate. With this annual percentage rate, we will be able to have the data we need to see the options that our loans present and which of all of them is more convenient.
Knowing the annual percentage rate and calculating it is very important to compare and make decisions about bank interest, especially our credit cards. This is because each loan or request for money has a completely different APR rate, with its penalties, charges, and additional costs.
How does the annual percentage rate calculator work?
The annual percentage rate can vary in many cases based on the rates generated by banks, as is the case with other variable interests. To calculate the APR credit card rate, the margins established by the banks must be valued together with the US Prime Rate.
Below we tell you how this annual percentage rate calculator works so that in a few steps you can know the costs that are assumed when requesting a loan from a bank, contemplating all types of charges.
How do you interpret the annual percentage rate calculator?
The first thing we must assess when calculating the annual percentage rate is that based on the particular characteristics of the loan, its interest rate, costs, and conditions, it will be equal to or different from the interest rate. Especially it will be exactly the same as the interest rate in all those cases in which there are no application costs, conditions, or opening.
In addition, the loans usually have an APR rate that can be both fixed and variable. What does this mean?
- That our loan APR can have a variable interest rate, which means that it can change from one moment to another.
- That our APR loan can have a fixed interest rate, which means that in that year it will not vary from one moment to another, but will be maintained for the duration of the financing or loan.
Regarding the annual percentage rate or APR that is applied in credit needs, we highlight 3 cases in particular in which the result of the calculation varies depending on the use that has been given to our accounts:
- The annual percentage rate or APR applied to banks or credit cards.
- The annual percentage rate or APR applied to an advance of an amount of money. This advance has a cost that depends on the entity and the types of advance.
- The annual percentage rate or APR is applied to penalties. In this case, the APR rate is higher, since it is the result of a failure to meet the quotas. This type of penalty is included in the previously accepted conditions.
Bearing this in mind, the calculation of the annual percentage rate can vary when dealing with outstanding balances.
What formula can be used to calculate the annual percentage rate?
The formula to calculate the annual percentage rate must include the following elements:
- Total economic amount to request.
- Additional costs.
- The annual interest rate.
- The time in which the loan will be effective is expressed in months.
This results in the following formula:
Annual Percentage Rate =
Discover with this example how is the calculation of the annual percentage rate
So that you can understand the calculation of the annual percentage rate, how it varies and how it affects us, we are going to observe it through a simple example, in which we can assess the one that is more economical.
The data we have is the following:
- Requested loan: €20,000.
- Additional costs for the application: €2,000.
- Annual interest rate: 5%.
- Months in which the loan will be paid: 240 months, which are equivalent to 20 calendar years.
With these data, the APR rate is 6.164%.
Is the interest rate the same as the annual percentage rate?
No. The interest rate refers to the interest applied in the application for a loan. The calculation of the annual percentage rate combines both the nominal interest rate and the rest of the expenses and costs that have been incurred in requesting an amount of money.
