Hunger Games

The definition of APR is “Annual Percentage Rate”. The annual rate that is charged for borrowing (or made by investing), expressed as a single percentagenumber that represents the actual yearly cost of funds over the term of a loan. This includes any fees or additional costs associated with the transaction.Loans or credit agreements can vary in terms of interest-rate structure, transaction fees, late penalties and other factors. A standardized computation suchas the APR provides borrowers with a bottom-line number they can easily compare to rates charged by other potential lenders. By law, credit card companiesand loan issuers must show customers the APR to facilitate a clear understanding of the actual rates applicable to their agreements. Credit card companiesare allowed to advertise interest rates on a monthly basis (e.g. 2% per month), but are also required to clearly state the APR to customers before anyagreement is signed. For example, a credit card company might charge 1% a month, but the APR is 1% x 12 months = 12%. This differs from annual percentage yield,which also takes compound interest into account.

Simple interest is called simple because it ignores the effects of compounding. The interest charge isalways based on the original principal, so interest on interest is not included.  This method may be used to find the interest charge for short-termloans, where ignoring compounding is less of an issue. Simple interest is determined by multiplying the interest rate by the principal by the number of periods.