Question

Explain why the APR does not compare loans for different lengths of time.

Answer 1

APR is Annual Percentage Rate. It is used to calculate the effective or the actual interest rate that is to be paid by the borrower to the lender. This term is used to coot be used compare different loans of the same length (or time period)

While calculating APR we must consider the number of days of the loan. Therefore, as the calculation of APR includes the time period in the form of number of days. We cannot compare two loans with different time period.

The APR is basically to see the finance cost you have to pay while getting a loan and it is one of the measures that is largely used in the industry to compare loans. As there are many fees and interest rate can be advertised in many ways to make it a lower interest rate. so APR makes it easier for a customer to make a decision.

Answer 2

Some classes of fees are not included in the calculation of APR. Because these fees are not included,as some consumer advocates claim that the APR does not represent the total cost of borrowing.
Excluded fees may include: routine one-time fees which are paid to someone other than the lender and penalties such as late service without regard for the size of the penalty it will be imposed