How is APR calculated?

APR, or Annual Percentage Rate, is calculated by taking the total cost of borrowing money over a year, including interest and other fees, and expressing it as a percentage of the amount borrowed. The calculation takes into account the timing and amount of all payments and fees associated with the loan.

Here is a basic formula for calculating APR:

APR = [(total cost of borrowing) / (loan amount)] x 100

To calculate the total cost of borrowing, you will need to add up all of the fees associated with the loan, including any origination fees, points, and other charges. You will also need to calculate the total interest paid over the life of the loan.

Once you have the total cost of borrowing, you can divide it by the loan amount to get the decimal equivalent of the APR. Multiply this decimal by 100 to convert it to a percentage.

It’s important to note that calculating APR can be complex, especially for loans with variable interest rates or irregular payment schedules. It’s always a good idea to use an online APR calculator or consult with a financial professional to ensure you are calculating the APR correctly.