In order to correctly compare two quantities or quantities, we must make sure that they are expressed in the same unit of measurement; it is the only way to ensure that we are not comparing pears with apples. **Precisely the APR unifies criteria**. But what is the APR?

The Annual Equivalent Rate - or simply APR for its acronym - is **a standard way of expressing both the benefits of some financial asset and the commitment acquired in a credit.**

The APR is an adopted way to make it possible to compare financial products that can contemplate various conditions. This facilitates the decisions of investors and debt holders through a unified percentage index.

**This indicator has been declared mandatory for the benefit of the general public**, which has made it much easier to make decisions thanks to this decision, when evaluating different financial instruments.

What is the APR of a checking account?

When we talk about the APR of a current account and, in general, of any instrument that represents an asset for us, we are talking about the **yield it offers us in percentage terms**. There are various ways of presenting offers of this nature and the APR shows us all these in the same figure.

For example, the frequency of capitalization of a placement can be monthly at the rate of a certain interest rate; however, certain calculations are required to know the total annual return and thus be able to calibrate it with other investments whose dividend is calculated annually.

Since **all institutions must present the explicit reference of the APR in their products**, we no longer have to worry about the calculations and formulas that we must apply if we need to consider multiple products in an investment or financing decision.

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What is the APR of a loan?

If, on the contrary, what we are looking for is financing, the APR will clearly clarify the percentage that we must repeal to fulfill the commitment, even considering all the associated expenses.

Depending on the loan and its configuration, we can have a different interest rate with the APR. As we have said, **the APR is responsible for encompassing all the elements of a loan and expresses them through a new percentage** that covers more than just the interest rate.

## What is the TIN?

Since we are talking about the APR, we must also clarify what the TIN is. The Nominal Interest Rate or TIN refers to **the interest rate applied to any financial product**. Consider only the interest rate, leaving out the expenses and costs of the negotiation.

As we can see, although the TIN may interest us within the information provided to us for a business proposal, in reality it will be more assertive to consider the APR to decide, since the latter includes expenditures that the former does not.

Knowing what APR is is very important for what was explained above. **Knowing its scope and usefulness, we will be much more certain when choosing which option is best for us** , although the terms and conditions of these are different.

## How to calculate APR

The APR is the result of applying a formula that normalizes the information of financial products expressed in different ways.

This formula is expressed as follows:

APR = - 1

(The symbol ** refers to the power)

Where "r" is the annual rate or interest rate and "f" is the number of payments to be made in a year if it is a loan, or the frequency of capitalization - also in a year - if it is an investment.

Making a quick example we can calculate the APR of an investment that is compounded quarterly at a rate of 8%. We have that, substituting these values, our formula would be the following:

APR = - 1 = 0.08243216 = 8.24%

There we see how the APR increases by 24 tenths of a percentage with respect to the TIN due to the effect of the quarterly capitalization. **This data is what should really interest us to weigh any financial decision**. Hence the importance of knowing what APR is.

## How the APR is applied

As we have already explained, **the APR can be calculated both for savings deposits, loans and investments, as well as for loans and other financing**. In both cases, it will guide us in the best way to achieve our objectives.

In each case, it is enough to put in the formula what corresponds; that is, if it is a placement we will use the corresponding capitalization frequency, but if we are talking about a credit that we want to opt for, what we must place in the function is the number of annual payments.

**We should never settle for knowing the TIN of a certain financial product**. To be able to value it in a fair measure, it is necessary to know the associated APR: it is the correct way to protect our investments and / or be responsible with the debts.