Annual Percentage Rate (APR)

The Annual Percentage Rate is defined by the Federal Reserve Board in its Regulation Z. It is the interest rate that every lender is required to reveal in its truth-in-lending statement to the borrower. Its purpose is to provide comparable interest rate information for all possible consumer financing arrangements. It works much like a computation of the lender’s internal rate of return of a loan except that it reports the Nominal Annual Rate instead of the Effective Annual Rate.

If a loan has regular payments with the same compound period, and no points or fees, the APR will usually be the same as the Nominal Annual Rate. The two rates tend to differ from each other when there are Points & Fees, stub periods, day-based compounding, or U.S. Rule amortization.

For more information, refer to Appendix J of Regulation Z. Regulation Z attempts to cut through the terminology and deal with actual cash flows. Appendix J to Regulation Z provides a wide variety of examples of consumer loans. TValue reproduces these official results exactly in almost all of the official examples and within established tolerances for the rest