What is APR?

APR is a common abbreviation for annual percentage rate, which is the amount of interest accrued on debt held for one year. For example, if you owed $10,000 and your APR were 10%, by the end of the year you would owe $11,000 (assuming you’d made no other payments during that time period).

Your APR is generally a combination of a base rate and the bank’s margin. It’s worth noting that the bank’s margin is where most of the rate variation stems from. Depending on your credit history and your predicted risk, the bank will collect a higher or lower margin on top of the base rate. Basically, banks manage their risk by charging more for loans that have a higher chance of defaulting.

While it’s important to know what your APR is, it’s also good to identify your DPR (daily percentage rate). To figure out your DPR, simply divide your APR by 365. This is how much interest you’ll owe per day on any outstanding balance. Going back to the example above where your APR is 10%, your DPR would be about .027%.

The final step is to multiply your DPR by the number of days in your billing period. For the sake of conversation, let’s say you wanted to see what your DPR would be in April. There are 30 days in that month, so you’d multiply .027 by 30. This gives you approximately .82%. Multiplying that amount by the balance (82% x $10,000) gives you $82.19. This means that when you go to pay your $10,000 balance off, you will now owe $10,082.19.