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9-8 When financial institutions, such as banks or credit unions, advertise the rates on their loans,...

9-8 When financial institutions, such as banks or credit unions, advertise the rates on their loans, they often report the APR. If you wanted to compare the interest rates on loans from different financial institutions, should you compare the APRs? Explain.

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Answer #1

Annual percentage rate is an effective interest rate which will be paid by the investor on the loan and it will be Accounting in not for the interest on the loan but it will also be Accounting in for other standardized fees associated with that loan so it is best way to compare loans interest rate from different financial institution because annual percentage rate will be offering them with the effective interest rate rather than just the normal interest rate so we will be trying to opt for annual percentage rate when we are trying to compare between the rates of different Financial institutions.

Annual percentage rate is higher than the nominal interest rate and it will be a better calculation of the cost of the borrowing because it will be Accounting in for other fees and it is effective interest rate.

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