Annual Percentage Rate (APR) is the percentage amount of interest and fees that a credit cardholder or borrower will pay on a loan’s outstanding balance in a year. APRs can be applied to credit card balances, home loans, student loans, and personal loans. Credit card companies and money lenders add APR to loans or credit balances to calculate how much interest is owed, including any additional fees such as lender charges and interest charges. Some of the fees included in your APR when borrowing money could be origination fees (any processing fees for starting your loan), [mortgage](https://www.masterclass.com/articles/how-does-mortgage-interest-work) broker fees, private mortgage insurance, and closing costs.
APR represents a recurring amount of interest that a lender charges a borrower on the outstanding balance of a loan or line of credit. You can typically find your APR on your monthly credit card statement, which notes the dollar amount of APR you were charged for a given month. This amount of money reflects a percentage of your outstanding credit card balance.

APR is not typically the same for every individual. Borrowers with good credit scores (of 740 or higher) are more likely to be approved for a lower APR than those with low credit scores. Also, longer-term loans are likely to carry high APRs. This is because general interest rates are more likely to rise over a longer period of time. A long-term loan also makes it more likely that the borrower may default on the loan before the due date.
The two main types of APR are fixed-rate APR and variable-rate APR, which dictate whether or not the APR rate remains constant throughout the life of the loan. Beyond those two categories, there are a few different types of APR that you may hear about when you’re shopping around for credit cards. 

1. __Fixed-rate APR__: With a fixed-rate APR, the percentage rate is locked in at the beginning of the loan and stays fixed until the loan amount is paid.
2. __Variable-rate APR__: A variable APR changes with the state of the economy. As the federal prime interest rate goes up and down, your APR adjusts. During a recession, your APR will drop. During times of economic growth when the prime rate is high, your APR rate will increase.
3. __Introductory APR__: An introductory APR is a reduced APR that is offered for the first six to 18 months of your loan as a promotional incentive.
4. __Penalty APR__: Penalty credit APR is applied to a cardholder’s balance when they make a late payment on a credit card or exceed their credit limit.
5. __Cash advance APR__: Cash advance APR is applied to any money that a cardholder withdraws as cash from their credit account.
6. __Balance transfer APR__: Balance transfer APR is applied to any amount of money when a cardholder transfers a balance from one credit card to another.
7. __Purchase APR__: This rate is applied to any new purchases you make with your card, and can be fixed or variable.
Your [interest rate](https://www.masterclass.com/articles/what-are-interest-rates) refers to the percentage you pay on the loan or credit card balance, without including any additional fees that are included in the total APR. Your APR is the total interest you will pay, including the interest rate and additional fees. When comparing fees and APRs from different lenders or credit card issuers, it is important to differentiate interest rates and APRs to get a clear sense of the total costs associated with the loan.
Calculating the amount of money that you owe in monthly APR is easy. All you need is your monthly loan statement and a calculator. 

1. __Find out your APR rate and your current loan balance__. To figure out how much APR you owe, you will need to know how much you owe, and your percentage APR. 
2. __Multiply your loan balance by your APR percentage__. Calculate the amount of APR that you owe annually by multiplying your APR by the total amount of your loan. For example, if your APR is 14 percent on a $10,000 loan, your equation will be 0.14 x 10,000 = $1,400. This means that you will owe $1,400 for an entire year. 
3. __Divide your yearly APR by 12 to get monthly payments__. Once you have the number for your annual payment, simply divide that number by 12 to get your monthly payment amount. In our example, 1,400 divided by 12 would be $116.66. This means that you would owe about $116,66 a month in APR.
Get the [MasterClass Annual Membership](https://www.masterclass.com) for exclusive access to video lessons taught by business luminaries, including Bob Iger, Chris Voss, Robin Roberts, Sara Blakely, Daniel Pink, Howard Schultz, Anna Wintour, and more.
The APR on a loan or line of credit reflects the amount of interest and other fees that a borrower owes to a lender. Different borrowers may have different APRs depending on their credit scores, but calculating the APR on your own loan is simple.

The APR on a loan or line of credit reflects the amount of interest and other fees that a borrower owes to a lender. Different borrowers may have different APRs depending on their credit scores, but calculating the APR on your own loan is simple.

What Is APR? Understanding How APR Works

Annual Percentage Rate (APR) is the percentage amount of interest and fees that a credit cardholder or borrower will pay on a loan’s outstanding balance in a year. APRs can be applied to credit card balances, home loans, student loans, and personal loans. Credit card companies and money lenders add APR to loans or credit balances to calculate how much interest is owed, including any additional fees such as lender charges and interest charges. Some of the fees included in your APR when borrowing money could be origination fees (any processing fees for starting your loan), <a href='https://www.masterclass.com/articles/how-does-mortgage-interest-work' target='_self' class='mc-text--link' data-mc-segment-trigger='true' data-mc-segment-event-type='Article Page Click' data-event-obj='{"textTag":"p","href":"https://www.masterclass.com/articles/how-does-mortgage-interest-work","linkCopy":"mortgage","category":null}'>mortgage</a> broker fees, private mortgage insurance, and closing costs.

What Is APR?

APR represents a recurring amount of interest that a lender charges a borrower on the outstanding balance of a loan or line of credit. You can typically find your APR on your monthly credit card statement, which notes the dollar amount of APR you were charged for a given month. This amount of money reflects a percentage of your outstanding credit card balance.APR is not typically the same for every individual. Borrowers with good credit scores (of 740 or higher) are more likely to be approved for a lower APR than those with low credit scores. Also, longer-term loans are likely to carry high APRs. This is because general interest rates are more likely to rise over a longer period of time. A long-term loan also makes it more likely that the borrower may default on the loan before the due date.

How Does APR Work?

The two main types of APR are fixed-rate APR and variable-rate APR, which dictate whether or not the APR rate remains constant throughout the life of the loan. Beyond those two categories, there are a few different types of APR that you may hear about when you’re shopping around for credit cards. <ol class="mc-m-4"><li class="mc-my-4"> 1. Fixed-rate APR: With a fixed-rate APR, the percentage rate is locked in at the beginning of the loan and stays fixed until the loan amount is paid. </li><li class="mc-my-4"> 2. Variable-rate APR: A variable APR changes with the state of the economy. As the federal prime interest rate goes up and down, your APR adjusts. During a recession, your APR will drop. During times of economic growth when the prime rate is high, your APR rate will increase. </li><li class="mc-my-4"> 3. Introductory APR: An introductory APR is a reduced APR that is offered for the first six to 18 months of your loan as a promotional incentive. </li><li class="mc-my-4"> 4. Penalty APR: Penalty credit APR is applied to a cardholder’s balance when they make a late payment on a credit card or exceed their credit limit. </li><li class="mc-my-4"> 5. Cash advance APR: Cash advance APR is applied to any money that a cardholder withdraws as cash from their credit account. </li><li class="mc-my-4"> 6. Balance transfer APR: Balance transfer APR is applied to any amount of money when a cardholder transfers a balance from one credit card to another. </li><li class="mc-my-4"> 7. Purchase APR: This rate is applied to any new purchases you make with your card, and can be fixed or variable. </li></ol>

7 Types of APR

Your <a href='https://www.masterclass.com/articles/what-are-interest-rates' target='_self' class='mc-text--link' data-mc-segment-trigger='true' data-mc-segment-event-type='Article Page Click' data-event-obj='{"textTag":"p","href":"https://www.masterclass.com/articles/what-are-interest-rates","linkCopy":"interest rate","category":null}'>interest rate</a> refers to the percentage you pay on the loan or credit card balance, without including any additional fees that are included in the total APR. Your APR is the total interest you will pay, including the interest rate and additional fees. When comparing fees and APRs from different lenders or credit card issuers, it is important to differentiate interest rates and APRs to get a clear sense of the total costs associated with the loan.

APR vs. Interest Rate: How Are They Different?

Calculating the amount of money that you owe in monthly APR is easy. All you need is your monthly loan statement and a calculator. <ol class="mc-m-4"><li class="mc-my-4"> 1. Find out your APR rate and your current loan balance. To figure out how much APR you owe, you will need to know how much you owe, and your percentage APR. </li><li class="mc-my-4"> 2. Multiply your loan balance by your APR percentage. Calculate the amount of APR that you owe annually by multiplying your APR by the total amount of your loan. For example, if your APR is 14 percent on a $10,000 loan, your equation will be 0.14 x 10,000 = $1,400. This means that you will owe $1,400 for an entire year. </li><li class="mc-my-4"> 3. Divide your yearly APR by 12 to get monthly payments. Once you have the number for your annual payment, simply divide that number by 12 to get your monthly payment amount. In our example, 1,400 divided by 12 would be $116.66. This means that you would owe about $116,66 a month in APR. </li></ol>

How to Calculate APR

Get the <a href='https://www.masterclass.com' target='_self' class='mc-text--link' data-mc-segment-trigger='true' data-mc-segment-event-type='Article Page Click' data-event-obj='{"textTag":"p","href":"https://www.masterclass.com","linkCopy":"MasterClass Annual Membership","category":null}'>MasterClass Annual Membership</a> for exclusive access to video lessons taught by business luminaries, including Bob Iger, Chris Voss, Robin Roberts, Sara Blakely, Daniel Pink, Howard Schultz, Anna Wintour, and more.

Want to Learn More About Business?

The APR on a loan or line of credit reflects the amount of interest and other fees that a borrower owes to a lender. Different borrowers may have different APRs depending on their credit scores, but calculating the APR on your own loan is simple.

The APR on a loan or line of credit reflects the amount of interest and other fees that a borrower owes to a lender. Different borrowers may have different APRs depending on their credit scores, but calculating the APR on your own loan is simple.
