## What Is the Annual Percentage Rate (APR)?

The **Annual Percentage Rate**, commonly known as **APR**, is the cost that the borrower must pay on the loan. It includes interest and all other costs or charges related to the loan. APR can be calculated using the formula given below.

Assume you have taken out a $500 loan at a 10% yearly interest rate. You need to pay extra $50 each year for taking the loan. But, the lender may charge you more fees associated with the loan making the APR, for say, 12%. Then, you need to pay $60 instead of $50.

APR calculation is crucial when comparing between different loan offers.

## How to Calculate the Monthly Payment with APR in Excel

Assume you want to take a loan of $7500 at a 14.5% annual interest rate. You need to pay additional $120 as closing costs. You can repay the loan with monthly payments in 2 years.

**Steps:**

- Apply the following formula in cell
**C10**to calculate the monthly payment using the**PMT function**in Excel.

`=PMT(C6/12,C7,C5+C8)`

- Add all the costs and charges with the principal loan amount in the formula.

- Enter the following formula in cell
**C11**to calculate the APR using the Excel**RATE function**.

`=RATE(C7,C10,C5-C8)*12`

- Subtract all the costs from the principal loan amount in the formula.

## Things to Remember

- Your annual percentage rate or APR must be greater than the annual interest rate.
- Add the fees with the loan amount when calculating the monthly payment and subtract them when calculating the APR.

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