What APR Means? | What is Annual Percentage Rate | Calculating Annual Percentage Rate

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What Does APR Mean

APR stands for Annual Percentage Rate and represents the relative cost of a transaction. The Annual Percentage Rate is a measure of the cost of credit annualized at the yearly rate.

Annual Percentage Rate Calculation

The Annual Percentage Rate (APR) is a function of the loan amount, the interest rate, the total added cost, and the terms. The difference between the interest rate and APR is the extra cost that is added into the loan.

Example:

Total Money Borrowed:	$500,000
Total Extra Cost:	$10,000
Interest Rate:	4.5%
Term:	30 Years

To find the monthly payment for this loan first calculate the total loan amount which is $510,000. While the total number of payments is 360 or one payment per month for thirty years. The monthly payment is $2,584.10 and the APR is 4.673%. If the loan is held to the full thirty year term total payments will equal $930,274.23 and interest payments will equal almost the entire original loan amount at $430,274.23.

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