How to Calculate the APR on a Loan
Calculating the APR on a loan is a fairly easy process that can be performed manually or by using a free online APR calculator. With just few numbers, including the loan amount, term of the loan and APY, you can calculate what you pay in interest on a monthly or yearly basis. Before you apply for a new auto loan, personal loan or credit card, there are a few facts you must know about calculating the APR on a loan.
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Instructions
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Understand APR (Annual Percentage Rate). APR is a calculation used to determine the annual percentage rate of interest you will pay for a line of credit or loan. APR is applied to credit cards, auto loans, mortgage loans and other lines of credit.
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Do the math. A loan with a 5 percent APR means the debtor will pay $5 for every $100 owed per year. A loan with a 25 percent APR will yield $25 in interest for every $100 owed for the year.
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Use an online APR calculator or financial calculator for easy calculation. According to the Capital One online calculator (see Resources), a $10,000 loan with a 5.99 percent APR and 12-month term will yield a cumulative interest amount of $327.42. The cumulative amount paid on the loan after the 12-month term will be $10,327.42.
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Use a simple equation to calculate the APR on a loan. Using the above example, multiply $10,000 (the loan amount) by 5.99 (the interest rate) divided by 12 (the term of the loan) to reach the APR amount: 10,000 X 5.99 / 12 = $49.92 (APR)
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Tips & Warnings
Always verify your numbers before making a final calculation.
Use an online APR calculator to avoid errors in calculation.
