APR Full Form and Types

July 15, 2025
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APR Full Form and Types

APR Full Form and Types

July 15, 2025

Registrationwala

APR full form is Annual Percentage Rate. It is a commonly used term in the financial world. It represents the total yearly cost of borrowing money via credit card or loan. Check out this article to know everything about APR, including APR formula, types, and tips to reduce APR interest rate.

What is APR Full Form?

The full form of APR is Annual Percentage Rate. Basically, this rate represents the total cost of borrowing money on an annual basis. It is expressed as a percentage (%).

APR includes not only the interest rate but also includes additional fees or charges associated with credit card or loan. Therefore, it gives the borrower a complete picture of how much they are supposed to pay to the lender.

How to Calculate APR?

Calculating APR accurately allows you to get a clear idea of accumulated interest rate and other charges applicable to a loan in an entire year. Using the formula provided below, you can calculate the annual percentage rate easily:

“Annual Percentage Rate (APR) = [{(Fees + Interest)/ Principal}/ n]x365x100”

Here, interest means the total interest amount paid throughout the term of the term. Principal means the loan amount. In the APR formula, ‘n’ refers to days included in the loan term.

Now, let’s understand the APR formula with the help of an example:

Ms. Aradhya applies for a personal loan of Rs. 8 lakhs, which she plans to repay over the course of 4 years. The interest rate is 11%, with a processing fee of 1.5% and an insurance charge of INR 4,000.

Now, let’s break down the figures:

Processing fee = Rs. 12,000
Insurance = Rs. 4,000
Total interest = Rs. 3,52,000
Loan term (n) = 4 years = 1460 days

Now, let’s apply the APR formula to these figures:

APR = [{(12,000 + 4,000 + 3,52,000) / 8,00,000} / 1460] × 365 × 100
APR = [{3,68,000 / 8,00,000} / 1460] × 365 × 100
APR = [0.46 / 1460] × 365 × 100 ≈ 11.5%

According to the APR formula, the annual cost of the loan in case of Ms. Aradhya would be 11.5%, which is slightly higher than the nominal interest rate of 11% due to the added processing and insurance charges.

It is important to note that the true cost of short-term loans and the total interest collected on savings accounts over time are not always adequately reflected by the Annual Percentage Rate, despite the fact that it is a common indicator of borrowing costs.

APR is an annualized representation of borrowing cost and does not properly reflect the impact of fees and interest over shorter periods of time, and time is a critical consideration for short-term loans. Therefore, APR may understate the actual interest gained in savings accounts since it fails to account for compound interest over the full term.

Different Types of APR

Different types of APR include the following:

Fixed APR: As the name suggests, a Fixed APR remains ‘fixed’ or ‘same’ throughout the loan term or credit card agreement.
Variable APR: This APR tends to fluctuate on the basis of the index rate. This means the interest rate could increase or decrease over time.
Simple APR: It is calculated on the loan’s principal amount only.
Effective APR: This APR includes compounding interest’s effects.
Nominal APR: It refers to the basic interest rate before compounding or additional fees is taken into account.
Compound APR: This APR accounts for accumulated interest. It means interest is charged on original principal balance as well as any previously accrued interest.

APR: Loans vs. Credit Cards

Both loans and credit cards use APR to express the annual cost of borrowing. However, the calculation of APR is done differently for both of them. For credit cards, APR is essentially the interest rate that applies to the holder’s balance when they do not pay it off in full each month. APR for credit cards may not always include extra fees while doing calculation.

In case of APR for loans, interest rate along with other costs is taken into account. Other costs include loan origination fees, mortgage insurance, closing charges, etc.

Tips to Reduce Interest Costs from APR

No one likes paying high APR costs. Mentioned below are some tips that can help to lower APR costs:

Opt for credit cards offering low or 0% APR. For this, you must compare APR rates on credit cards offered by different banks before choosing the right card for yourself.
Make sure you pay your full balance by the due date each month.
Whenever possible, you should pay more than the required minimum balance.
To qualify for lower APR, you must improve your credit score. This is because the lender views a borrower having a high credit score as a low-risk borrower and makes them eligible for a more favorable interest rate.

Conclusion

APR stands for Annual Percentage Rate. An APR is the percentage of total annual cost of borrowing. It gives you a clear idea of how much money you are supposed to pay to the lender by taking into account interest rate, processing fees, and other charges. By improving credit score, you might be able to get a more favorable APR rate.

Frequently Asked Questions (FAQs)

Q1. What is the full form of APR?

A. APR full form is the Annual Percentage Rate.

Q2. What is the APR formula?

A. APR formula is as follows: Annual Percentage Rate (APR) = [{(Fees + Interest)/ Principal}/ n]x365x100.

Q3. What factors does APR take into account?

A. It takes into account interest rate and other applicable costs like processing fees, closing charges, mortgage insurance, etc.

Q4. What are the different types of APR?

A. The different types of APR include: (i) Compound APR, (ii) Nominal APR, (iii) Fixed APR, (iv) Variable APR, (v) Effective APR, and (vi) Simple APR.

Q5. What is the difference between fixed APR and variable APR?

A. Fixed APR refers to APR that remains fixed throughout the loan term. However, variable APR tends to change, meaning it increases or decreases overtime. This is the basic difference between the two of them.

APR Full Form and Types