# What is APR (Annual Percentage Rate)?

The term APR, or annual percentage rate is an important term to understand when you’re applying for a personal loan. Understanding how it’s calculated and applied can help you make informed decisions when you need to borrow money. The annual percentage rate or APR is the amount of interest expressed as a yearly rate. Interest includes fees, such as an origination fee. As a consumer, you may be able to obtain a low APR by building and establishing good credit. This page will help you understand how an APR works on a loan and how you can calculate APR.

# How to Calculate APR (Annual Percentage Rate)

Calculating APR is simple. You’ll need a few numbers to get started: Loan amount, fees, interest paid over the life of the loan and the number of days in the loan term.

Once you have this information, follow these four simple steps.

To help illustrate, let’s calculate the APR on a \$10,000 loan with a total charge of \$4,000 (which includes interest over the life of the loan and the origination fee). And, let’s assume the loan term is 5 years or 1,825 days.

 Steps to Calculating APR on a Loan Step 1 Divide the finance charge by the loan amount. \$4,000 / \$10,000 = 0.4 Step 2 Multiply the result by the number of days in the year. 0.4 x 365 days = 146 Step 3 Divide the total by the term of the loan. 146 / 1,825 days = 0.08 Step 4 Multiply the result by 100 and add a percentage sign. 0.08 x 100 = 8% APR