Annual percentage rate (APR)

Annual percentage rate (APR)

It is an expression of the effective rate of interest that will have to be paid on a loan. It is taken as a percentage and calculated as a yearly rate. It is usually different and higher than the advertised rate because it includes one time fees and other costs which help to determine the total cost of borrowing. It is a measure to compare different loans offered by competing lenders taking into account both interest rate and closing fees. It is essential to know the total amount of fees involved as different lenders have different set of fees included in the APR. As a rough guide to calculating the apr, first deduct the fees from the loan amount. Then calculate the interest rate on the actual loan payment amount instead of the actual loan amount. The amount will be a number close to your APR.