I’m applying for a loan and I was approved at 11.99% but when I went to sign the paperwork it said 12.68%. I asked about it and the loan officer said that it was because of a $50 finance charge that was not interest bearing. I don’t understand how this works…
In: 5
11.99% is the APR
12.38% is the APY
The APR is the % that gets divided by how many times it is compounded (calculated) a year, usually monthly or daily.
The APY is the actual total per year. Based on the beginning value and compound interval.
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[I made a calculator in Google Sheets, including payments/contributions](https://docs.google.com/spreadsheets/d/1annrnFwPMdkM_q8VUrzUcyV9OL4ibzRQUMcNiPPcilA/copy), you can play around with it. The default scenario is a 30-year 200,000 mortgage loan at 7% APR, compounded monthly with monthly payments/contributions.
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Scenario:
$100, 120% APR, compounded monthly (120/12 = 10% day each month)
Month 0: $100
Month 1: $110 ($100+ 10%)
Month 2: $121 ($110 + 10%)
Month 3: $133.10
Month 4: $146.41
Month 5: $161.05
Month 6: $177.16
Month 7: $194.87
Month 8: $214.36
Month 9: $235.79
Month 10: $259.37
Month 11: $285.31
Month 12: $313.84
If we compare $313.84 to $100, it comes to ~314% APY, even though the APR was 120%.
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