If you're considering taking out a business loan or signing up for a credit card, you need to have a strong understanding of what annual percentage rate, or APR, means. It is the standard way to express a loan rate and is required on all credit card applications in the United States.

It's best to learn all you can about the annual percentage rate before you even considering borrowing money in a commercial capacity. Consider the following as a guide to annual percentage rate for beginners:

1. You should know how an annual percentage rate on a loan is calculated.

2. Learn the difference between fixed and variable annual percentage rates.

3. Discover useful ways to compare several annual percentage rates.

Action Steps
The best contacts and resources to help you get it done

Learn how an annual percentage rate is calculated

The term annual percentage rate is somewhat self-explanatory. It is the rate your lender will charge you for borrowing over the course of one calendar year. For example, if the lender charges 2% per month, the annual percentage rate will be 24%. If the loan also has points or fees, they are added to the APR, which is especially true with building loans. This can make it difficult to calculate your actual rate on your own. Luckily, there are programs that can help.

I recommend: Visit Debt Consolidation Care's website for a more in-depth explanation of what an annual percentage rate represents. Then check out eFunda's rate calculator to help you find the annual percentage rate on more complicated loans.

Understand the difference between fixed and variable annual percentage rate

While a fixed and variable annual percentage rate are calculated in the same manner, the difference between the two can have a profound affect on your loan. While fixed rates remain relatively stable over time, variable rates can change at any time without prior notice. Variable rates are most common on credit cards and mortgages, but can also be present on other lines of credit.

I recommend: Read the Federal Reserve Board's article on choosing a credit card to help you decide if you'd benefit more from a fixed or variable rate and the legal requirements of each. Then visit Evolution Finance's Card Hub website to read more about fixed and variable rates, as well as intro APRs and default rates.

Learn to determine a good annual percentage rate

Once you have a basic understanding of how it works, you need to learn how to compare more than one annual percentage rate. For beginners, make sure you're comparing apples to apples. This is easy to do with credit cards, since all applications are federally mandated to contain a rate box, or Schumer Table, but with personal or mortgage loans it can be more tricky.

I recommend: Read Quicken Loans' article on the difference between interest rate and APR so that you never confuse the two in your comparisons. Then go to Farlex's article on comparing the annual percentage rates offered by different lenders. Talk to several financial institutions before taking out your loan to ensure that you get the best deal possible.

The APR is the total interest paid divided by the amount of money borrowed. For example, you borrow 15,000 at an APR of 10 percent for one year. Multiplying 15,000 by 0.1 equals the total interest paid, which is $1,500. Divide $1,500 by the original amount of the loan, $15,000, to get the annual percentage rate of 10 percent. Lenders use other criteria, such as the size and financial stability of the business, to decide whether to set a low or high APR.

Furthermore, the annual percentage rate on a credit card determines the interest you pay for maintaining or transferring a balance, or for taking out a cash advance. Some of these credit cards have an annual percentage rate for purchases, one for balance transfers and a late penalty APR. Income and creditworthiness usually determine the credit card amount. When making decisions about applying for credit or loans to start or boost your business, consider these steps:

1. Research annual percentage rate information to help you decide the right loan or credit card.

2. Get help with annual percentage rate facts and figures.

3. Pick a credit card or loan with the best annual percentage rate and reasonable monthly payment.

Action Steps
The best contacts and resources to help you get it done

Get annual percentage rate information before making certain financial decisions

Seek information and annual percentage rate advice from publications or organizations that receive annual percentage rate training.

I recommend: The Federal Reserve Board offers annual percentage rate information and how it applies when determining balances versus minimum payments. Learn the difference between annual percentage rate and annual percentage yield at Investopedia.

Contact an annual percentage rate consultant for help on calculating the numbers

Understand how annual percentage rate calculations work, and receive tips on eliminating debt and managing credit. Certain fees may apply to receive annual percentage rate advice or services.

I recommend: HM Credit Consulting provides services and resources for figuring the annual percentage rate in order to pick the right credit card, finance a mortgage or to settle on a payment plan. Consolidated Credit Counseling Services educates customers on calculating the APR. Lending Tree is an online financial service that helps consumers use the annual percentage rate to compare mortgage, car, student or business loans.

Choose a loan or credit card with a good APR

Make sure you understand whether the annual percentage rate is fixed, which means that it stays the same, or variable, which means the APR can increase or decrease. A fixed, low APR may be more manageable for your budget.

I recommend: Bankrate is a good starting point for finding credit cards or loans with a reasonable annual percentage rate. Bankaholic lets you compare the APR of credit cards before selecting one. The site also features information on CDs and money market rates.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  Certain fees apply to the annual percentage rate, particularly for mortgage or commercial loans. These include application fees, points, closing costs, loan origination fees and insurance.
• •  As required by law, credit card companies and lenders must state the annual percentage rate in writing so that you know what to expect when you apply for a loan or a line of credit in terms of repayment.

Do you need to produce a report on the annual percentage rate? Your report has to provide statistics and figures. However, before producing the report, you need a quick refresher course on what is an annual percentage rate and how it works.

You can visit consumer news websites to learn about the annual percentage rate. You can also learn about the trends of these rates. For example, are they increasing or decreasing? Find out the annual percentage rate news and trends by doing the following:

1. Obtain the latest annual percentage rate by going to news websites.

2. Understand how the annual percentage rate works by visiting blogs.

3. Rely on reports to get the latest information on the annual percentage rate.

Action Steps
The best contacts and resources to help you get it done

Visit news websites to get annual percentage rate news and trends

Learn if the annual percentage rate is increasing or decreasing. News websites will report why rates are increasing and by how much. For example, you can find out why the annual percentage rate is increasing on credit cards. Perhaps the Federal Reserve Bank's decision to raise its prime rate is the reason for annual percentage rates increasing on credit cards.

I recommend: CourierPostOnline provides annual percentage rate news and trends. Here, you can read about credit companies raising interest rates on credit cards. You will also learn about how much the rates will increase. You’ll want to make it a habit to visit Bankrate. This website provides comprehensive annual percentage rate news and trends. It has the latest annual percentage rates on car loans, credit cards, and home equity loans.

Read blogs to understand trends in the annual percentage rate

While you know the definition of the annual percentage rate, you may not be aware of how different factors affect it. Blogs can provide in-depth information on this rate. Perhaps you're researching rates on mortgage loans. Read blogs to learn how mortgage points can impact the annual percentage rate.

I recommend: Blogged offers comprehensive information on the annual percentage rate. You will understand what this rate is. Find out how points can affect the annual percentage rate. Active rain also provides good information on the annual percentage rate. You’ll learn about the cost for a family to finance a home.

Rely on white papers or reports for annual percentage rate news and trends

White papers can focus on the basics of calculating the annual percentage rate. You can read about applied interest, which consists of simple, compound, and add-on interest calculation methods. The Federal Reserve Bank is also another website you can check for the latest annual percentage rate trends.

I recommend: Margill has a white paper on the annual percentage rate dealing with calculations of applied interest. The Federal Reserve Bank is a website you will want to check often for the annual percentage rate. It provides the statistics on consumer credit and commercial bank lending.

If you are in charge of securing loans for your business, then you better have a good background in annual percentage rates if you don't want to end up getting a high interest rate loan that sandbags your company's finances. Knowing some annual percentage rate key terms and how to calculate the annual percentage rate can help you locate low interest loans that will give your company the financial freedom you are looking for.

Action Steps
The best contacts and resources to help you get it done

Fixed annual percentage rate

A fixed annual percentage rate is an annual percentage rate that will not change even if the prime rate increases. However, if you default on your credit card or loan, the bank can raise your fixed rate, because you will have defaulted on your agreement of payback terms.

I recommend: At Evolution Finance, you can learn more about fixed annual percentage rates and how they differ from variable annual percentage rates.

Variable annual percentage rate

A variable annual percentage rate is a rate that will change based on the prime rate. Depending on the prime rate, this type of annual percentage rate can either go up or down.

I recommend: You can learn more about variable annual percentage rates at the Federal Reserve Board. While there, spend some time reading their helpful articles on annual percentage rates.

Interest rate

The interest rate is the percent rate that the lender will charge you for borrowing money from them. The interest rate is part of the calculation of the annual percentage rate.

I recommend: Quicken Loans has an article that can help you differentiate between the interest rate and annual percentage rate.

Default annual percentage rate

The default annual percentage rate is the rate that will be assigned to you by the lending agency if you fail to make payments on time. The default annual percentage rate is much higher than the original rate on loans and credit cards.

I recommend: At Consumer Education Services, you can learn more about the default annual percentage rate along with other tips to keep you out of debt and what to do if you get into debt.

Prime rate

The prime rate is the rate that banks charge their customers who have the best credit. Prime rate is not the same at every bank and it does change based on what the Federal Reserve Bank does to the Federal Funds Rate.

I recommend: MoneyCafe.com has more information on prime rates and provides a chart of prime rates over time.

APR calculation

The APR calculation, or annual percentage rate calculation, is a handy term to know. This will help you calculate the annual APR for any credit card or loan you consider applying for. The calculation is the interest rate plus any extra fees or costs that the lender is going to attach.

I recommend: At Debt Consolidation Care, you can find a wealth of information on calculating the annual percentage rate of a loan or a credit card agreement.