How this number is made
APR is the rate that equates what you received with the payments you must make. If a fee was taken out of the loan, you received less than the note’s principal, so the APR is higher than the note rate. This page solves that rate. It assumes one payment a month and no odd first period.
- Amount received is the cash you got, or the principal minus prepaid finance charges.
- The payment and the months are the contract.
Formula
Find r such that the present value of the monthly payments equals the amount received. APR = r × 12.
Worked example
With the figures already in the form, apr is 9.34%.
Questions
Why is this higher than the rate on the contract?
Because the contract rate ignores a fee taken up front. APR is how those fees are turned into a rate.
Does it include a fee I pay every month?
Only if that fee is already inside the payment you typed.