The APR (Annual Percentage Rate) formula is used to calculate the interest rate on loans. It takes into account the finance charge, number of payment periods in a year, principal amount borrowed, and total number of payments. For an example item costing $1450 with a $250 down payment and 24 monthly payments of $53 each, the calculations show the total cost is $1522, the finance charge is $72, and applying the APR formula results in an interest rate of 5.76%.

1. Personal Finance - APR

2. Annual Percentage Rate
Formula
APRAPR ==
22 ×× nn ×× ff
P (NP (N ++ 1)1)
nn == nnumber of payment periods in one yearumber of payment periods in one year
ff == ffinance chargeinance charge
PP== PPrincipal or amount borrowedrincipal or amount borrowed
- remember to subtract down payment from cash- remember to subtract down payment from cash
priceprice
NN== totaltotal NNumber of paymentsumber of payments

3. Details on the item:
 Cash price of item - $1450
 Number of payments -24
 Amount per payment - $53
 Down payment - $250

4. Step 1 – Finding total cost
 Number of payments * amount per payment
 24 * 53 = $1272
 Then add the down payment
 1272 + 250 = $1522
 Items total cost is $1522
(This would be the total installment price)

5. Step 2 – Finding the finance charge
 Total cost – cash price
 1522 – 1450 = 72

6. Step 3 - APR
 Equation from slide 2
 (2 * 12 * 72)
(1200 *(24 +1))
 =.0576 = 5.76%
*to find principal take cash price – down
payment

7. Step 3 - APR
 Equation from slide 2
 (2 * 12 * 72)
(1200 *(24 +1))
 =.0576 = 5.76%
*to find principal take cash price – down
payment