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Annual Percentage Rate

The Annual Percentage Rate is the yearly charge to a borrower on the annual cost of funds covering the duration of a mortgage, loan, or credit card that takes into account interest, insurance, and principal payment amounts. APR is also considered the cost of issued credit expressed as the annual percentage of that specified credit amount. The monthly percentage of APR can be determined by dividing the total Annual Percentage Rate by twelve (12) months. A daily rate can also be calculated by dividing the APR by three hundred sixty-five (365) days. The Annual Percentage Rate is used in most mortgages or credit agreements and can cover a variety of fees and costs that make up the structure of the interest rate in addition to the principal of the mortgage, loan, or investment. The APR standardizes the computations of all the costs and fees that will need to be paid back so the borrower can compare which agreement terms are the most affordable. This number may also be used to compare the actual cost of short and long-term loans; usually categorized as either fixed or variable. Variable APRs often apply to different types of transactions, most of which can be increased or decreased over time.This partially removes the risk of hidden charges being buried in credit agreements as the borrower is able to calculate his or her bottom line on any money being provided by various creditors or lenders.

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