It can be easy to confuse APR (annual percentage rate) and APY (annual percentage yield). This article will discuss, "APR Vs APY: What Is The Difference Between APR And APY?" Let's get started.
What is APR?
The annual percentage rate is essentially the annual cost of borrowing money. It describes the yearly interest that you'll pay for borrowing money, be it via credit card, mortgage, auto loan, or another form of credit. In addition to the interest rate, APR can also include additional costs, like annual fees. The lower the APR on your loan, the less you'll pay in interest.
What is APY?
Sometimes called the effective annual rate (EAR), the annual percentage yield (APY) describes the amount of money your savings or other investments can earn annually. A higher APY means that you'll have a higher rate of return on your investment.
APR Vs APY: What Is The Difference Between APR And APY?
Both APR and APY are used as measurements of interest, but APR focuses on the amount of interest that the borrower has to pay, while APY calculates the amount of interest earned when saving. When assessing APR, the smaller the percentage, the lower the cost of borrowing money through a personal loan or mortgage. On the other hand, a higher APY means that you'll earn more from that type of financial investment, such as a deposit account or certificate of deposit.
APR Vs APY: What Is The Difference Between APR And APY? - Hopefully, this article can help you to get some knowledge.
