Annual Percentage Rate - APR

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You must have seen the APR or annual percentage rate, which is used to refer to everything from mortgages and auto loans to credit cards. In this article, we look at credit card APRs  which you have probably seen listed in your monthly statements.

What is APR?

APR is an annual representation of your interest rate. When deciding between credit cards, APR can help you compare how expensive transactions will be on each one. It is useful to consider two main things about how APR works:- 1) How it applies and 2) How it is  calculated?

How APR Works?

Generally Credit Card companies offer a grace period for new purchases. If you only shop and pay your closing balance every month by the due date, then you only pay the amount without interest. However, If you want to keep the balance on your card, you have to pay the agreed interest on your outstanding balance.

Factors Affecting the APR:-


Leaving a balance on your credit card for an extended period of time may result in high interest rate and this will as a result affects the APR. APR will have no effect if you have good Credit History.

How to Calculate APR?


Main components to determine APR are:

  1. Interest Rate
  2. Loan Amount
  3. Duration of Loan
  4. Additional Fees (If any) 
Calculate Monthly Payment:

Suppose you borrow 100,000 with a 7% interest rate for 30 years. So to calculate the Monthly payment we have.

a = 100,000 (amount of the loan)
r = 0.00583 ( 7% Annual rate , 0.07 /12 for monthly)
n = tenure period i.e 360 months

So, Formula = a/{[(1+r)^n]-1}/[r(1+r)^n]=p

Calculation = 100,000/{[(1+0.00583)^360]-1}/[0.00583(1+0.00583)^360 = 665.30



Location: Delhi, India

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