The annual percentage rate or APR is the yearly interest rate on a sum charged to the borrower or paid to investors. It is the percentage of annual funds throughout an income or loan. It has fees and additional transaction costs, but it is not a compounding account. The APR is a bottom line number that can be compared with credit cards, lenders, or other investment items. Therefore, it is calculated for the whole year rather than just a monthly case.
It is considered a finance charge that has to be expressed in terms of the annual rate. There is nominal APR, calculated on the simple interest rate, and the effective APR, calculated on the fee with compound interest rate.
The APR is used for car loans, credit cards, mortgages, etc. It is a percentage calculation used to express the amount paid by an individual or an entity annually for borrowing money. There can be fixed or variable APR.
Interest is applicable for a specific period when an individual or entity borrows money. The APR is the percentage of the interest rate that the borrower has to pay for the loan, which adds up to the total cost of the loan.
APR is not something that an individual or entity has to pay it always. When an individual has deposited some account in the bank, they will get interest on the deposited money promptly. In this case, the account holder will get the calculated APR on the account deposit. Any lending institution will charge less on APR for the money deposited than on any loans you borrow from them.
Two types of APR: personal and advertised APR
Representative APR depends on the advertised annual rate of interest of a loan. On the other hand, personal APR depends on the annual interest rate the lender offers depending on one’s financial profile and eligibility to get the loan. Therefore, APR is calculated as below:
APR= ((fees+interest/principal/nX365) X 100
Here, interest is the total interest paid for a loan
Principal is the total loan amount
N = total number of days in the loan term
Use of Annual Percentage Rate in real estate
Real estate agents should know that APR is a crucial term. It is important to know the difference between interest rates and APR. So, APR is the interest rate and fees to be given for a loan taken. Fees included in APR in the case of real estate are:
• Appraisal fee
• Origination fee
• Building inspections
• Points
• Underwriting fees
• Broker’s fee
• Miscellaneous fee
Therefore, it is important to know the details of the charges included in an APR, whether for personal or real estate purposes. It will help you get suitable results and ensure you go through the right calculation.
