How to Calculate APR | How Credit Card Companies Get You | Annual Percentage Rate

To understand how APR is calculated, let’s say that you were to take out a loan of $10,000 at 10% interest, with a term of 10 years that will be paid back at the end of the term.

That would make your annual interest expenses $1,000 per year.

Let’s also assume your bank has included fees associated with the loan totalling $500.

To get the APR of this loan, you need to add the cost of the fees to the total amount in interest paid.

Spread across a 10 year period, the additional $500 charge is divided by 10, which is $50 per year. $50 is 0.5% of the $10,000 loan, adding 0.5% to the annual percentage rate.

Therefore, the annual percentage rate is 10% + 0.5% = 10.5%.
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0:00 Intro
0:08 APR Definition
0:33 APR Formula
0:52 APR Sample Usage
1:43 Sample Problem
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