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I’m not clear on the term APR - How it works for variable & non variable APR?

Assuming that, i have a loan for 12 months for the amount of $100.

How it works for 5% variable and 6% non variable apr for a month?

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APR stands for annual percentage rate. In this case it means what percent interest you would be charged on a loan.

Variable rate APR means that the rate fluctuates based on key interest rates, meaning you are not protected from rates going up, but have the opportunity to save if rates go down. You would want a variable rate if you expect the interest rate to go down in the future.

Non-variable (also known as fixed) APR is just the opposite. It doesn't fluctuate with interest rates, and you are locked in to that rate for the duration of your term. You would want this if you expect interest rates to go up and want to be protected from that.

Finally, if you borrowed $100 for a one-month term, as in your question, it is simply 1/12 of the APR. So for a variable rate you would pay 0.41% and your repayment would need to be $100.42. For fixed rate, you would be charged 0.5% interest and need to repay $100.50.

These are very simple explanations and examples, but I hope it helps you figure this stuff out.

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  • Thank you. 1/12 of 100 is 8.3333 - now assigned interest percentage either .41% or .5% will be applied for this monthly amount which is 8.3333 ?? Is that correct?? Or it is applied on the principal amount which is $100
    – goofyui
    Dec 31, 2017 at 3:15
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    It is applied to the principle amount of $100. If you borrowed $100 for a one-month term, as in your question, it is simply 1/12 of the APR. So for a variable rate you would pay 0.41% and your repayment would need to be $100.42. For fixed rate, you would be charged 0.5% interest and need to repay $100.50. If this answers your question, please mark it as the answer. Thank you! Dec 31, 2017 at 4:12
  • Just another clarification. If i borrow $100 for 12 month term .. with each month payment of $8.333 ( 100/12 = 8.333) - whether APR will be applied on $8.33 or on the principal amount which is $100 /- ? APR could be variable or non variable
    – goofyui
    Jan 1, 2018 at 20:51
  • Refer to my new comment, I needed to lay it out a little better. Jan 2, 2018 at 4:18
  • Does the rate in a variable-rate loan ever decrease? I was under the impression that they are lower than fixed-rate loans because they have the ability to raise their rates later, whereas fixed-rate loans must start higher because they can't "make it up" later by raising the rate.
    – chepner
    Mar 14, 2022 at 13:07

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