Which statement is true about an annual percentage rate (APR)?(1 point) Responses It is of little interest to the average borrower. It is of little interest to the average borrower. It is equal to the interest rate times the principal. It is equal to the interest rate times the principal. It is reduced every time you make a payment. It is reduced every time you make a payment. It is a simple way to compare all the various elements of different loans.
It is a simple way to compare all the various elements of different loans.
The statement that is true about an annual percentage rate (APR) is: It is a simple way to compare all the various elements of different loans.
The statement that is true about an annual percentage rate (APR) is that it is a simple way to compare all the various elements of different loans.
To understand why this statement is true, let's first explain what an annual percentage rate (APR) is. The APR is a measurement of the total cost of borrowing, including both the interest rate and any additional fees or charges associated with the loan. It is expressed as an annualized percentage of the total loan amount.
When comparing different loans, it can be challenging to determine which one is the most cost-effective because they may have different interest rates, fees, and terms. The APR provides a standardized way to compare these different elements by taking into account the total cost of the loan. By looking at the APR, borrowers can easily identify which loan option offers the best value for their needs.
To find the APR, you can ask the lender directly or calculate it yourself using the following formula:
APR = (Total Finance Charges / Loan Amount) x 100
In conclusion, the APR is a useful tool for borrowers as it allows them to compare loans by considering the total cost of borrowing, including interest rates and additional fees. By doing so, borrowers can make an informed decision about which loan option is the most cost-effective for their financial situation.