Talking about interest rates, there is one term that many investors know, namely the Annual Percentage Rate (APR). This term, often used in traditional finance, will indicate the loan costs/profits received by the lender in 1 year.

Meanwhile, the application of APR is slightly different in the world of crypto assets because it is often used in lending/staking crypto assets.

In this case, APR measures the rate of return or fees associated with lending/staking crypto assets over a certain period. So, to better understand what APR is, its application in the crypto world, and how to calculate APR and APY, see the full review below.

Definition of APR (Annual Percentage Rate)

The definition of Annual Percentage Rate (APR) is a standard measure that describes the total cost of a loan/profit earned by a lender in 1 year. Not only the main interest rate. APR also includes other loan-related costs, starting from administrative costs to handling.

The concept of the Annual Percentage Rate is very important for conventional interest rates because it will show a more accurate picture of the costs/profits associated with loans within one year.

At conventional interest rates, APR is used by financial institutions to provide clear information to borrowers regarding loan costs. In addition, the Annual Percentage Rate (APR) also includes interest rates and additional fees associated with loans or financial products.

In this case, APR is designed to provide a broader picture of the total costs associated with loans/financial products over one year. In conventional interest rates, the APR includes the main interest rate and other fees the lender may charge.

Application of APR in the Crypto World

After knowing the meaning/definition of the Annual Percentage Rate (APR), it is also important to understand the application of APR in the crypto world. Understanding the application of APR in the crypto world is very important for crypto asset owners and investors.

With a good understanding, crypto asset owners and investors are expected to be able to make better investment decisions.

Please note APR can also be applied in the crypto world in several contexts that are almost the same as its use in conventional interest rates.

As mentioned earlier, the application of APR in the crypto world can be seen in the lending/staking of crypto assets within a certain period. As for the crypto world, some lending platforms facilitate users to lend crypto assets to other parties, then receive rewards in the form of interest.

APR can also be applied to the context above to measure the cost of borrowing and the promised rate of return. Users can also see the APR in determining the interest rate received/paid over a certain period.

On the other hand, staking holds several crypto assets on the blockchain protocol to support the network and validate transactions.

The reward for the owner of the crypto asset is in the form of a prize/interest. In staking crypto assets, APR can be applied to measure the promised rate of return for crypto asset holders who participate in staking.

Users can also see APR as a way to estimate the return that can be expected from the staking activity.

Then What’s the Difference between APR and APY

After knowing the application of APR in the crypto world, now is the time to understand the difference between APR and APY. The Annual Percentage Yield (APY) is an annual interest rate that considers the compounding effect that an investor will obtain.

The APY will be obtained if the investor reinvests the total investment profits previously obtained. In the context of the world of crypto assets, here are some differences between APR and APY that you need to know, namely:

1. Compounding Effect

As mentioned above, in APY, the compounding effect will be calculated. In addition, the main focus of APY is the amount of profit that investors will get, while in APR, the main focus is the amount of interest that must be paid.

2. Cost Components

Another difference between APY and APR relates to the cost component. It is known at APY there is no calculation related to the cost factor. As for calculating the APR, a cost factor will be included. Therefore, the APR can also be a reference for prospective borrowers considering better credit facilities.

How to Calculate APR vs. APY

Already know what are the differences between APR and APY? Now, it’s time to understand how to calculate APR vs APY. Understanding how to calculate APR and APY is very important in a financial context, especially related to interest rates and returns on investment.

With a good understanding Of calculating APR and APY, it is hoped that later investors will get a clearer picture regarding the actual costs/returns of financial/investment products.

The following is an explanation regarding how to calculate APR vs. APY in general that you need to know, namely:

1. Annual Percentage Rate (APR)

To calculate the Annual Percentage Rate (APR), the formula that can be used is as follows:

APR = ((Interest rate + fees : Principal value of the loan) : tenor in days)) x 365 x 100

In calculating the APR, the steps that can be taken are as follows:

• First, calculate the total interest rate that must be paid using the formula A = (P(1+RT). Notes: A = interest rate that must be paid, P = principal, R = interest rate, while T = term.
• Next, in the calculation, please enter administrative costs.
• Continue by adding the results of points 1 and 2, and then the result is divided by the principal amount of the loan.
• Then divided by the tenor with units of days.
• Then, multiplied by 365 days or a period of 1 year.
• Finally, to get a percentage value, please divide by 100.

2. Annual Percentage Yield (APY)

To calculate the Annual Percentage Yield (APY), the formula that can be used is as follows:

APY= (1 + (r/n))n.

In this case, r = annual interest rate, while n = investment period. The following are the steps in calculating APY, namely:

• First, know the APR and the frequency of interest payments per year. For example, the annual interest rate = r, while the frequency of interest payments per year = n.
• The annual interest rate is divided into periodic interest rates, namely by dividing it by the frequency of interest payments per year. For example, the periodic interest rate is r/n.
• Finally, add 1 to the periodic interest rate and get (1 + (r/n)).

Conclusion

The definition of Annual Percentage Rate (APR) is a standard measure that describes the total cost of a loan/profit earned by a lender in 1 year. Not only the main interest rate. APR also includes other loan-related costs, starting from administrative costs to handling.

Please note that APR can also be applied in the crypto world in several contexts, almost like its use in conventional interest rates.

As mentioned earlier, the application of APR in the crypto world can be seen in crypto lending/staking on crypto assets within a certain period. As for the crypto world, some lending platforms facilitate users to lend crypto assets to other parties, then receive rewards in the form of interest.

APR can also be applied to the context above to measure the cost of borrowing and the promised rate of return.

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