APR and EAR
- APR (Annual Percentage Rate) is the stated annual rate.
- EAR (Effective Annual Rate) is the true annual rate after compounding.
Formula:
If compounding happens more than once a year, EAR is higher than APR.
This is why two loans with the same APR can still have different true borrowing costs.
This only makes sense together with Compound Interest & Simple Interest.