If you have a revolving credit card or a mortgage on your home, you pay an annual percentage of interest (or a financing fee) on that money. This is called the APR, or annual rate (now also called ISC - Synthetic Cost Index). Calculating the APR on your revolving credit card only takes a few minutes if you know a few key factors and a little algebra. The APR on mortgages, on the other hand, is different from the simple interest rate because it provides for additional costs or commissions that are charged to you to protect the loan. Learn here how to calculate both.
Steps
Part 1 of 3: Part # 1: Understanding the APR
Step 1. Borrowing money costs money
If you use a revolving credit card or take out a mortgage on your home, you may need to use more money than you currently have. If you have been given credit, banks expect you to pay a premium in return, as well as a financial cost for the benefit of receiving money. This financial rate is called the APR, or synthetic cost index.
Step 2. The APR can be divided into monthly or daily installments
The APR is the annual rate you pay for the credit or loan. For example, if you get a loan of € 1,000 and the APR is 10%, at the end of the year you will have € 100, which is 10% of your € 1,000 premium.
- But creditors can tweak this number and the monthly payments. If you want to know the periodic monthly rate, just divide your 10% annual APR into 12 installments, that is 10 ÷ 12% = 0, 83%. Each month, the interest charges will be 0, 83%.
- Lenders can also change the APR to charge it every day. If you want to know the periodic daily rate, just divide your 10% annual APR by 365, i.e. 10% ÷ 365 = 0.02%. Each day, the interest charges will be 0.02%.
Step 3. Learn about the three types of APR
There are three different types: the fixed, the variable and the mixed. Fixed rates remain constant throughout the life of the loan or credit card. Variable rates can fluctuate every day, leaving the borrower in the dark as to how much interest he is paying. Mixed rates depend on the level of the debt.
Step 4. The average APR is around 14%
Which is not an insignificant sum, especially if you are unable to pay the principal quickly. Average fixed rates fluctuate slightly below 14%, while average variable rates fluctuate slightly above 14%.
Step 5. Please note that you will not be charged the rate if you pay the monthly revolving credit card balance in full
If you spend 500 euros on your credit card, but pay the entire balance by the due date, the APR will not be calculated. To avoid paying interest, as well as improve your overall score and have a high rating, make your monthly payments on time and in full.
Part 2 of 3: Part 2: Calculate the APR for the Credit Card
Step 1. Find your current balance, or amount due, of the card by looking at the most recent statement
Let's say your balance, with the APR, is € 2500.
Step 2. Find the financial cost of the card always by checking the most recent statement
Your hypothetical bank statement says the financial cost is € 25.
Step 3. Break down the financial cost by the amount owed
€25, 00 ÷ €2.500 = 0, 01
Step 4. Multiply the result by 100 to get the percentage
This is your share of financial charges or interest charged on a monthly basis.
0.01 x 100 = 1%
Step 5. Multiply the monthly fee by 12
The result is your annual interest rate (as a percentage), also known as the "APR".
1% x 12 = 12%
Part 3 of 3: Part 3: Calculate the APR for the Mortgage Loan
Step 1. Search for an APR chart online
Enter "Calculation APR for a mortgage" in a search engine and click on a result.
Step 2. Determine the amount you wish to borrow and enter it where it is indicated on the table
Let's say you want to borrow € 300,000.
Step 3. Enter the additional costs for the loan guarantee (fees and commissions) where indicated on the table
Let's assume a cost of € 750 more.
Step 4. Enter the net share of the interest rate, which is the annual rate without the additional fees
Suppose we make a calculation based on an interest rate of 6.25%.
Step 5. Enter the loan term
Most, but not all, mortgages are based on a fixed term of 30 years.
Step 6. Press the "Calculate" button to obtain the APR, which will be different from the interest rate and represents the real cost of the loan based on the total loan amount
- The APR of our hypothetical mortgage would be 6.27%.
- The monthly fee including interest payments would be € 1,847.
- You would have to add the total interest cost on the mortgage of $ 364,975, making the total cost of the loan a whopping $ 664,975.
