APR vs Interest Rate | Whats The Difference?

In this video, I will be explaining the difference between an Interest Rate and Annual Percentage Rate (APR) and provide examples for easy understanding.

So you may know a little bit about credit scores and loans and the two terms associated with them interest rates and annual percentage rates aka aprs so what exactly is the interest rate in the apr and what makes them different so what’s going on guys chris robinson here in today’s video we will be focusing on apr and interest rate and what makes them different

So be sure to watch the full video take notes smash that thumbs up button like us on facebook and subscribe to our youtube channel for more related content without further ado let’s jump right into it alright so let’s first start with the simple definition with a couple of examples an interest rate slash nominal interest rate is an expense percentage on a loan

For example if you take out a thousand dollar loan with a twelve percent interest rate which could be high in most cases your expense on the loan is one thousand times zero point one which equals to a 120 expense on the loan for one year this is commonly divided into monthly payments making it a ten dollar monthly interest payment if you want to calculate all

This together the principal and interest it would be as follow one thousand one hundred and twenty dollars divided by twelve which equals ninety three dollars and thirty three cent monthly if you want to know your principal you will simply subtract ten dollars from the ninety 93 dollars and 33 to get 83.33 all right so enough about interest rate now let’s discuss

And examine an apr to know exactly what it is an annual percentage rate is the cost you pay each year on the money you borrow which also includes fees the amount of the loan along with these fees will express the percentage of the apr within this apr you will find the interest rate as well as additional fees attached for acquiring a loan and these fees can vary

But common fees includes closing costs rebates broker fees and etc and it’s also important to know that the apr is always greater than or equal to the nominal interest rate and buying a home would be a great example of calculating the apr if you were to buy a home for a hundred thousand dollars with the same high interest rate of 12 but you have to pay closing

Costs and insurance in the amount of 2000 your new loan is now and two thousand dollars we’ll use the twelve percent interest rate on a new loan amount to calculate an annual interest expense of twelve thousand two hundred and forty thousand dollars now to calculate the apr we need to divide the twelve thousand two hundred and forty dollars by the original loan

Amount of one hundred thousand dollars to get zero point one two two four then multiply by one hundred to get twelve point twenty four percent as our apr so if you’re not good with numbers or sometimes have trouble understanding finance i can understand how this can be confusing however whenever you take out a loan it’s important to know your apr since this rate

Will give you the full picture on how much money you will be paying in the end so in other words if you’re ever confused about which lender and which loan is best for you it’s important that you pay close attention to that apr since this is the real cost of financing all right so i really hope you guys learned something new are getting a better understanding of

The difference between an apr and an interest rate so before you go don’t forget to smash that like button and subscribe to our youtube channel for future videos like this and i see you guys in the next video you

Transcribed from video
APR vs Interest Rate | What’s The Difference? By Monetary Mindset