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How to calculate the APR on a loan

Updated March 21, 2017

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.

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.

Do the math. A loan with a 5 per cent APR means the debtor will pay £3 for every £65 owed per year. A loan with a 25 per cent APR will yield £16 in interest for every £65 owed for the year.

Use an online APR calculator or financial calculator for easy calculation. According to the Capital One online calculator (see Resources), a £6,500 loan with a 5.99 per cent APR and 12-month term will yield a cumulative interest amount of £212.80. The cumulative amount paid on the loan after the 12-month term will be £6,712.80.

Use a simple equation to calculate the APR on a loan. Using the above example, multiply £6,500 (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 = £32.40 (APR)

Tip

Always verify your numbers before making a final calculation.

Warning

Use an online APR calculator to avoid errors in calculation.

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About the Author

Charlie Gaston has written numerous instructional articles on topics ranging from business to communications and estate planning. Gaston holds a bachelor's degree in international business and a master's degree in communications. She is fluent in Spanish and has extensive travel experience.