Q:
How do you convert APR to a monthly interest rate?
A:
Quick Answer
To convert APR to a monthly interest rate, divide the total APR percentage by 12, according to Mark Kennan. As Investopedia explains, APR is the annual percentage rate on a loan and does not take into account compounding interest.
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Full Answer
According to Investopedia, APR differs from annual percentage yield (APY) in that APY does include compound interest. Compound interest is additional interest that is added to the existing interest. The monthly interest rate is slightly higher if it is calculated based on the APY because of this additional compounding interest. Banks sometimes present the annual interest rate as APY instead of the APR to make rates seem lower than they are.
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