Question

Which statement about the Annual Percentage Rate (APR) is NOT true? Add an explanation.

a) If the APR is 6%, you will pay 6% of the loan balance per month.
b) The APR takes into account the fees for a loan.
c) The APR for a loan depends on when the loan must be repaid.
d) The APR helps compare loans with the same payback period but different monthly rates and fees.

Answer 1

The false statement about APR is that you will pay 6% of the loan balance per month if the APR is 6%. APR is an annual rate, and it includes fees for a loan but is divided by 12 to get the monthly interest rate.

Step-by-step explanation:

The statement about the Annual Percentage Rate (APR) that is NOT true is: If the APR is 6%, you will pay 6% of the loan balance per month. This statement is incorrect because APR is expressed as an annual rate. Although the APR includes fees for a loan, this annual rate is generally divided by 12 to calculate the monthly interest rate, not directly applied each month. Therefore, you would not pay 6% of the loan balance per month; instead, you'd pay approximately 0.5% per month if the APR is 6%. The APR reflects the annual cost of a loan to a borrower, including fees, and it is used to compare loans with the same repayment period.