Find the APR (rounded to the nearest tenth of a percent) for the loan described below.
Purchase a living room set for $3,700 at 11% add-on interest for 3 years.
To find the Annual Percentage Rate (APR) for a loan with add-on interest, you can use the following steps:
Step 1: Calculate the total amount of interest paid over the loan term.
The add-on interest is a simple interest calculation where the interest is added to the principal upfront, and then the total is divided by the loan term.
Interest = Principal × Interest Rate
Interest = $3,700 × 11%
Interest = $407
Step 2: Calculate the total amount repaid over the loan term.
Total Amount Repaid = Principal + Interest
Total Amount Repaid = $3,700 + $407
Total Amount Repaid = $4,107
Step 3: Calculate the effective interest rate per year.
Effective Interest Rate = Total Amount Repaid / Principal
Effective Interest Rate = $4,107 / $3,700
Effective Interest Rate = 1.11 or 111%
Step 4: Calculate the APR.
APR (rounded to the nearest tenth of a percent) = Effective Interest Rate / Loan Term
APR = 111% / 3
APR = 37%
Therefore, the APR for the loan described is approximately 37%.