#APR #AnnualPercentageRate #Finance #FinancialLiteracy
What is APR?
APR stands for Annual Percentage Rate. It is a standardized way of calculating the cost of borrowing money over the course of a year. The APR takes into account not only the interest rate on the loan, but also any additional fees or charges that may be associated with the loan.
Breaking Down APR
When you see an APR listed on a loan or credit card, it represents the total cost of borrowing money for one year. This includes not only the interest rate, but also any fees or charges that may be added on top of the principal amount borrowed.
Interest Rate
The interest rate is the percentage of the loan amount that is charged as interest over a certain period of time, typically expressed as an annual percentage rate.
Fees and Charges
In addition to the interest rate, lenders may also charge fees for processing the loan, such as origination fees or closing costs. These fees are included in the APR to give you a better picture of the total cost of borrowing.
Understanding the Cost of Borrowing
When you take out a loan with a high APR, such as the 27% APR mentioned in the example, you will end up paying a significant amount of interest over the course of the loan. In the example of a 6k loan with a 27% APR, the total charged interest amounts to almost 58 hundred dollars!
Conclusion
So, in simple terms, APR is a way of showing you how much it will cost to borrow money over the course of a year. It takes into account both the interest rate and any additional fees or charges, giving you a more accurate picture of the total cost of borrowing. Remember to always read the fine print and compare APRs when shopping for loans or credit cards to make sure you are getting the best deal possible.
Hope that explanation helps! 🌟
So the rule of 72 works both ways. Take the interest rate divided by 72 and it it tells you how long it takes to double your money.
So at 2 percent it’s 36 years
12 percent it’s 6 years
36 percent is 2 years
So in your case it’s 2.66 years
So at 2.6) years they will have doubled their money.
It’s even worse at pawn shops. They really don’t want your valuables and only sell a fraction of all the goods they acquire. They’re general rule is to offer half of what they can sell it for but only to people they expect to come pay off their 200% APR in the next few months. If you aren’t a borrower but a seller they would much rather make money off of loans than have to sell used goods. But $40 in drugs today is worth $80
tomorrow. Similarly 18 year olds think immediate gratification they couldn’t access last year can’t possibly be too much work in a few years. Everyone else should not be playing dangerous games with their future. I think it’s even criminal how much banks loan to entrepreneurs when they expect so much more in fees and bankruptcies than any wager on the majority of their being successful in say, a new restaurant venture.
This is an expensive loan. You’ll never another loan to pay off this loan and the cycle continues
Here is some useful calculators that will come in handy in life in general: [loan calculator](https://www.calculator.net/loan-calculator.html)
[financial calculators](https://www.calculator.net/financial-calculator.html)
You are 5, stop trying to take out loans. Someday when you can go to a bank and get a loan try to get like a 7 to 9% rate, anything above that and you really don’t need whatever it is you thought you needed.
APR stands for Annual Percentage Rate. Imagine you borrowed some money from a friend, and every year, you have to pay a little extra for borrowing that money. APR is like the extra cost you pay each year for using the borrowed money. So, if you borrow $100 and the APR is 10%, you would pay $10 extra at the end of the year. It’s a way to know how much borrowing money will cost you over time.
It’s 1,620 first year, roughly $135 per month. Anything above that goes towards principle. Which often times isn’t much
WHY in the name of all that is sacred and holy were you so desperate for money that you did this terrible, awful, horrible thing?
Apr is percentage of interest spread over the term of the loan. What your math isn’t including is these pay day/personal loan places add all their fees to the total being loaned. So not only you’re paying interest on the money you borrow but also all the costs involved in originating the loan.
If you learn nothing else, just don’t take that loan
ELI5? OK.
APR is the cost of the loan, basically how many cents it costs to borrow a dollar for a year. 27% APR? Borrow $100, pay back $127 a year from now.
But since you mostly start paying back immediately, you actually pay a little less than that, since you didn’t borrow the full sum for a whole year.
But if you borrow for longer, it costs more. Five times as long? Quite a bit less than five times as much, but four times as much is still a lot of money, as you see.
Since it gets complicated, use a loan calculator.
27% is really high. That’s the kind of rate you might accept if your car broke down and you need your car to work and you have absolutely no other solution… but if you have no other solution, then you are a second emergency away from a complete breakdown, and you’ll be unable to pay back… it’s a vicious circle. You get the good APRs when you don’t really need the money.
APY is almost the same thing, or the opposite if you want, it’s when you loan money to a bank by putting it in a HYSA or CD, or you loan it to the US Government by putting it in a T-bill. Then the math works for you: the longer you keep it there, the more money you get!
This post hurts my soul. That kind of loan is a trap that keeps broke people broke.
What do you need so badly that you’re considering borrowing $6k at 27%?
It compunds daily and it’s calculated on the outstanding balance.
Let’s do an exercise with it compunding yearly.
You ask for $1000, and you are gonna pay $500 each year @ 27%APR.
At the end of year one, you owe the $1000 plus $270 (1000×27%), you pay $500. You’re left only with $770.
At the end of year two, you owe $770 plus $208. You pay 500, and now you owe $478.
Next year, you owe $478 plus $129. You pay $500, and you owe $107.
At the end of year 4, you owe $107 plus $29. You pay $136, and you’re done.
In the end, you paid the original 1000 + (270+208+129+107=$714) in interest.
In reality, it compunds more than daily, because they can extract a little more interest from you. But basically, at the end of every month, you pay your balance plus the interest generated in that period.
Yup math is not mathing :).
**We might think 27% means 27% x $6,000 = $1,620 is the** ***total*** **interest you’ll pay.** But no, that’s the interest you pay **yearly**! And the loan is 5 years! So $1,620 x 5!?!
But you won’t actually pay $1,620 every year, because your loan doesn’t stay at $6,000 – you pay some of it every year, and the interest is calculated again every year based on what you have remaining on the loan.
**Year 1 – 27% x $6,000 = $1,620 interest**
But you will have also paid say $700 of the loan itself.
So your loan now is $6,000 – $700 = $5,300 at the end of Year 1.
Interest is calculated again based on $5,300.
**Year 2 – 27% x $5,300 = $1,431 interest**
But you also paid say $900 on the loan, remaining in loan is now $4,400
**Year 3 – 27% x $4,400 = $1,188 interest**
But you also paid $1,100, remaining in loan is now $3,300
**Year 4 – 27% x $3,300 = $891 interest**
But you also paid $1,500, remaining in loan is now $1,800
**Year 5 – 27% x $1,800 = $486 interest**
And you pay the rest of the loan $1,800.
Loan is done.
Add all the interests, and you find you paid $5,600 (on the $6,000 loan).
FYI in a real loan these calculations are done monthly not yearly.
Is this a credit card? Because that’s a pretty high interest rate even for a credit card.
Please tell me it’s not a car loan.
APR…annual percentage rate…the rate at which interest accrues on a balance.
If you carried a $1k balance for 1 year at 27% APR it would accumulate $270 in interest which applies to the balance. If that $1270 then sat for another year it would accrue another $1270 × 0.27 = $343 in interest. Now the balance is $1613.
If you left $1000 sit for 40 years at 27% APR your balance at the end of the 40 years would be $1000 × 1.27⁴⁰ = $14,195,439 owed.
The way loans work is your monthly payments cover the interest so it doesnt apply to the balance like that plus a bit more to actually reduce the balance. How much more depends on the term of the loan. If its a five year loan your monthly payment is set so it covers the interest plus enough more that your owed balance will become zero after 5 years of payments. The longer term the loan, the lower your monthly payment because the amount extra past covering interest is less…but the more interest you pay.
The APR (annual percentage rate) determines the dollar amount of interest you’ll pay for a given loan. If you borrow $6000 for one year at 27%, then pay it all back at the end of the year, you’ll need to pay $6000 + $6000 x 27% = $7620.
But usually you pay monthly, paying down some what you owe $6000 plus what ever interest you owe for 1 month (27%/12).
The loan you’re talking about is over several years so the total interest over the life of the loan adds up significantly.
ETA: 27% is crazy high. Don’t take this loan unless it’s a dire emergency AND you WILL pay it off in a month or so.
Thats if youre only looking to make payments yes. Ideally, youd be looking to pay back the loan earlier and save yourself interest.
Not sure about the APRs are not what they seem at first view part. Its just a number. I think the part youre actually confused about is how the interest is applied to the principal so the more you pay off the principal the less interest youd pay
All you need to know is that is that 27% is insanely high and while I don’t know your situation, I would dare to say that no matter what you are buying, this rate is unjustified
The A in APR stands for “annual”. You’re paying 27% *per year* on the outstanding balance.
If you were only making interest payments, and leaving the entire principal unpaid until the end of the loan, then the total interest you pay would be 27 * 5 = 135% of the loan amount. In reality, you’re paying down the loan as you go, so you pay somewhat less, but still a lot. A 27% interest rate is insanely high.
When I plug your numbers into an amortization calculator, the total interest on a $6k loan comes out to $4992.60. Either you’re borrowing more than $6000, or the actual interest rate is higher than 27%, or there are some extra fees that you’re not accounting for.