What is APR? How do I calculate it? What is it compared to monthly interest rate? What are some of the terms I need to know to understand APR?
If monthly interest rate was 2% what would the APR be?
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You take out a loan for something like a car. That loan is for $100. The person that gave you that loan is taking a risk. They don’t know for sure that you’ll pay them back the 100 you borrowed. To account for this, they expect you to pay back the 100, plus a little extra.
The APR is that extra. It’s the amount of interest that you have to pay on the loan each year.
Let’s say your APR is 20%. If you took out a 100 dollar loan and didn’t pay it back at all, at the end of the year you would owe your original 100 dollars *plus 20%* to get you to 120 dollars.
Every year, the bank adds 20% of the remaining loan amount onto the loan. So if you had 50 bucks left at the end of the year, you would add an extra 10 bucks on to give you 60 total dollars left.
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