Definition of Annual Percentage Rate

The Annual Percentage Rate (APR) is the interest charged annually against the loans or credit cards that are taken from the individual which a payback agreement.

Annual Percentage Rate (APR) is utilized on everything from contracts and car advances to credit cards. Eventually, APR may be a straightforward rate term utilized to specific the numerical amount paid by a person or organization annually for the benefit of borrowing cash.


Let’s consider a case to clarify the concept more. A person takes out a $25,000 advance to purchase a jeep. The credit comes with a settled APR of 5% and must be paid back over five years. This implies that the person will be got to make consistent month to month installments of around $470.

However, the month to month installment is utilized toward paying back both the principal loan credit sum and the interest amount due on the advance.


As the person advances through the installments over five years, the annual sum paid in interest charges. In our case, the person starts by paying $1,500 per year in interest, but the sum will alter as the borrower makes installments. Within the conclusion, the person closes up paying $28,306.88 in total: reimbursement of the principal of the $25,000 loan and $3,306.88 in interest.

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