What is the formula for calculating APR?

Assuming you mean Annual Percentage Rate

You can find the formula, as well as a handy calculator here: http://www.efunda.com/formulae/finance/apr_calculator.cfm

The following is a simple Excel formula for calculating the APR (Annual Percentage Rate) on a loan. While there are a number of free calculators on the web to provide the APR, they seldom provide the necessary formula to replicate the calculation.

The calculation simply takes into account the total cost of the loan (given additional fees) and calculates the expected periodic payment based on the total. Then you calculate the equivalent rate on the periodic payment.

It works like this:

Assumptions:

1) Loan amount: $100,000

2) Interest Rate: 6.5%

3) Loan Term: 30 years

4) Origination: 1% (this equals $100,000 * 1% = $1,000)

5) Other Fees: $1,000

Calculation:

1) The total cost is $102,000 ($100,000 + origination + other fees).

2) In Microsoft Excel^© use the PMT function to calculate the periodic rate. In this case, the "period" will be a payment every month.

3) The PMT formula will look like this (given our assumptions): =PMT((.065/12),(30*12),102000,0). In the formula, since we assume the lender requires payments every month (the period), the rate is divided by the number of periods and the total periods are calculated by multiplying the loan term (in years) by the periodic increment (12 months).

4) The total period payment (as determined by the PMT formula) is $644.71.

5) You can then use the RATE function to determine the corresponding rate necessary to produce a monthly payment of $644.71 on an original loan amount of $100,000.

6) The RATE formula will look like this: =RATE((30*12),641.71,100000,0).

7) The equivalent periodic rate will equal 0.55762%.

8) Multiply this periodic rate by 12 to get the annual percentage rate or the APR, which equals 6.691% in our scenario.

While a monthly payment and interest accrual frequency is used in this particular example, you can use this approach for any repayment schedule. However, this model does assume you expect fixed payments over defined and consistent repayment intervals.

You can verify these results using any of the free online APR calculators or the one listed above.

First answer by ID3419306961. Last edit by Jeamsler76. Contributor trust: 3 [recommend contributor]. Question popularity: 70 [recommend question]