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LSDefine
Simple English definitions for legal terms
APR
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A quick definition of APR:
APR: APR stands for Annual Percentage Rate. It is a yearly rate that shows how much it costs to borrow money or earn interest on an investment. This rate includes the interest charged and any other fees associated with the loan or investment. To calculate APR, you multiply the interest rate by the number of payment periods in a year. Basically, APR tells you how much you will pay for borrowing money or how much you will earn on an investment each year.
A more thorough explanation:
An annual percentage rate (APR) is the yearly cost of borrowing money or earning interest on an investment. It includes the interest rate and any other fees associated with the transaction. APR is expressed as a percentage and is calculated by multiplying the interest rate per payment period by the number of payment periods in a year.
If you borrow $1,000 at an interest rate of 10% per year, the APR would be 10%. However, if there are additional fees associated with the loan, such as an origination fee of $50, the APR would be slightly higher than 10%.
Another example would be if you invest $1,000 in a savings account that earns 5% interest per year. The APR would be 5%, but if there are any fees associated with the account, such as a monthly maintenance fee of $5, the APR would be slightly lower than 5%.
These examples illustrate how APR takes into account not only the interest rate, but also any additional fees associated with the transaction. It provides a more accurate representation of the true cost of borrowing or earning interest.