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 APR
2. Balance APR
3. Cash advance APR
4. 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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