APR – Complete Guide

The term we call APR is a rather important concept that people who are striving to accumulate should know. Generally, many bank accounts and checking accounts opened for savings have it.

APR

In the traditional financial system, there is an annual percentage return (APY). Here, the level of interest does not matter the effects of capitalization. However, it is important for APY. The company that issued you your credit card divides 24.99% APR into a daily periodic interest so that the monthly interest can be calculated. 24.99% APR is 0.068466%.

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What Is APR?

The concept of APR means “annual percentage rate”. It shows you the annual cost of the borrowing you have. The APR can be fixed, that is, it can maintain the same level during the credit process. Variable APR depends on an index. If this index increases or decreases, the APR may vary by a large difference. Variable APRs are mostly associated with credit card usage, while fixed APRs are associated with loans.

If we look at a longer expression, APR, that is, the level of the annual percentage rate is the income received during the maturity period. This income may refer to the actual annual cost of the funds and the income earned from an investment. In addition, all fees or costs related to the transaction in the situation. 

How Is The APR Calculated?

It is the type of credit that is important for the APR, which can be calculated in different ways. The bank will, for example, add an interest to the index if it is a credit card that is tied to it. This is determined by your credit score. 

A high APR is not good for users who borrow money. APR refers to loans if we approach the problem from the view of borrowing.

Formula APR= Periodic Rate (Can be based on a Daily or Monthly period) x Number of periods in the year

The Difference Between APR And APY

Although it may seem confusing to some, it’s possible to know the periodic cost that you will have over the desired when you open a calculation tool.

You often see these terms in the crypto world, in the calculation of the staking reward you will make on the wallet, or in Defi products. They are important criteria for calculating how much you earn or how much interest you need to pay when applied. It is possible to miss using these two phrases. The reason is that they are both used in the field of credit and investment to calculate interest. But they have some differences from each other.

The difference between APR and APY is that APY is integrated with anatocism. APR has nothing to do with that. It is anatocism that arises by multiplying the number of days payments and the daily interest. 

Formula APY= (1 + period ratio)^ number of periods– 1)

Imagine that you have 100 USD and suppose you have two investment options at hand.

  • Option 1: If you lock your USDT for a year with a period of 52 weeks per year, it is 10% APR.
  • Option 2: If you lock your USDT for a year with 52 weeks, it is 10% APY.

Results:

  • Option 1: 110 USDT is refundable.
  • Option 2: 110,51 USDT is refundable.

The reason why the second option is higher is that APY determines the new one to be applied by sequentially adding the earnings paid in the past. Usually, investment companies advertise APY, which they pay to attract investors. The reason for this lies that they know that they will earn more from long-term services like private pensions. Lending institutions, on the other hand, prefer to advertise APR. 

They Often Appear In The Defi

As a rule, a high APY is in favor of the investor, but it is displayed on asset management platforms on a daily, weekly, and monthly basis. In APY, the monthly interest is added and collected. If we conclude the topic, APY calculates the interest return on your income, while APR calculates the interest cost on your borrowing. In the realm of Defi, APY and APR are used. We should follow these rates while staking and make our investments accordingly.

Financial institutions necessarily have different reasons for giving different rates. Therefore, the truth that you are a lender or a borrower does not change the situation. Always make sure that you understand what rates they give, and then compare them with the rates that other institutions give. 

As a result, the difference in the figures presented to you may surprise you. Therefore, you can lose your way in different ways when you want to make a profit. That is why seeking professional help in your financial affairs at all times is a critical step to making a profit.

APR – Complete Guide

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