Annual Percentage Rate (APR)

The annual rate of interest a person must pay on a loan or receive in a bank account is the annual percentage rate (APR). At its core, APR is a straightforward percentage phrase that describes the dollar amount a person or organization pays annually for the right to borrow money.

Almost all credit card APRs begin with the U.S. Prime Rate, the interest rate financial institutions charge their clients for lending goods, even though credit card APRs vary greatly. To calculate the APR, credit card companies add a modest charge known as a margin to the prime rate. Depending on the kind of card, the cardholder’s credit score, and how the card is used, a different margin may apply. It’s critical to realize that the prime rate might change depending on the state of the economy. APRs that are linked to the prime might therefore alter as well.

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