

Human: I was offered an 8,000, 60 month loan with 16.5% APR. Can you help me to understand how this APR is calculated relative to the loan? I don't understand what APR is.

Assistant: 
This is a relatively easy question, APR stands for Annual Percentage Rate, and it’s just a fancy way to measure what percentage of your total starting amount you will need to pay back over a given number of years. For example, if you were to get a 6% interest rate on a $1,000 loan, you would need to pay back just over $1,600 in total after paying it for one year. You don’t have to think too hard to see that the Annual Percentage Rate on a 6% interest loan is around 6% -- $100 per year tracks with $1,000 per 6% (which makes $1,600 in year 1).
APR stands for “Annual Percentage Rate”, which is the cost of credit expressed as an annual rate. It is the total yearly cost of the loan, expressed as an annual rate, and is intended to make it clear what the cost of a loan will be over its entire term. The APR is generally calculated as a compound interest rate, calculating the total accumulated interest due through the end of the full term of the loan. This is usually the best metric for evaluating the total cost of a loan when comparing different options.  In the example you provided, it sounds like an eight thousand dollar loan with a term of 60 months at 16.5% APR would result in a total accumulated interest amount of $11,990.52 and monthly payments over the course of the term would be $3,000.00, resulting in a total cost of principal and interest of $23,000.52 over the course of the loan.