Final answer:
The Annual Percentage Rate (APR) is the annual rate charged for borrowing or the rate earned through an investment, such as interest on a savings account deposit or interest paid on credit card borrowing, which can range from 12% to 18% annually.
Step-by-step explanation:
The Annual Percentage Rate (APR) can either refer to the annual rate charged for borrowing funds or the rate that is earned through an investment. For instance, when you deposit money into a savings account at a bank, the bank pays you interest, which is essentially the rate of return on your deposit. The interest rate is expressed as a percentage of your deposit. Conversely, if you borrow money, for example, by using a credit card to purchase items such as a car or a computer, you will need to pay interest on the amount you have borrowed.
Let's look at credit card borrowing as an example. A typical credit card interest rate might range from 12% to 18% annually. With around 200 million Americans as cardholders in 2021 and approximately $807 billion in outstanding credit card debts, it's clear that a significant amount of interest is paid by consumers each year. Assuming an average annual interest rate of 15%, Americans pay tens of billions of dollars annually in interest on credit card debts in addition to any basic fees or late payment penalties associated with the credit cards.