Which statement is true about an annual percentage rate (APR)?(1 point) Responses 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 of little interest to the average borrower. It is of little interest to the average borrower. 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 that it is a simple way to compare all the various elements of different loans.
The correct statement about an annual percentage rate (APR) is: "It is a simple way to compare all the various elements of different loans."
The APR represents the annual cost of borrowing expressed as a percentage, and it includes not only the interest rate but also other costs associated with the loan, such as origination fees and closing costs. By considering all these elements, the APR allows borrowers to compare different loan offers on an equal basis.
To calculate the APR, you can follow these steps:
1. Determine the total interest paid over the loan term: Multiply the interest rate by the loan principal.
2. Add any additional fees or costs associated with the loan: These may include application fees, processing fees, or points paid.
3. Divide the total cost (interest plus fees) by the loan term (usually expressed in years).
4. Multiply the result by 100 to convert it into a percentage.
Comparing different loans based on their APRs can help you identify the loan that will cost you the least in the long run. It provides a clearer picture of the overall cost of borrowing and helps you make an informed decision when choosing a loan.