How to Calculate APR?

Calculating the annual percentage rate will prove to depend on the nature in which it is being applied. For example, calculating the APR for a mortgage loan may prove to be different than that applied for a credit card. However, the one key component to consider in with APR calculations is how they are included in the payment plan or installment structure.

Furthermore, a credit card APR is not the same as with mortgage loans, where there is a fixed interest rate in place. Credit card APRs will prove to be more of an estimate because of the fact that once the balance is paid off on a credit card one can use it or borrow more money subsequent times. Furthermore, the credit card APR may also increase the more that the card is used and the more a balance is accrued.

Calculating a credit card APR or other type of loan APR can prove to be confusing, particularly because there are various circumstances that may play a factor. Typically speaking, an APR calculator is commonly used to derive an APR.

An example could be in the case of a loan for a total of $200,000. Aside from the total amount borrowed, there is a total of another $5,000 in extra costs and fees also applied to the loan. The APR rate is 7.5% for a period of 30 years. This situation can be an example of an APR for a mortgage loan with a term of 30 years. The final monthly payment will be given as $1,433.39, using a total of 360 payments.

NEXT: What Does APR Mean?