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what is aprUsed Car Lot Software for Car Dealers Since 2003

what is apr

BitBeater™ Used Car Lot Software Support

October 28, 2015 by Joe Bertin

APR is an acronym (abbreviation) for “Annual Percentage Rate”.


There are two percentage rates that U.S. car dealers need to be aware of,

The Contract Rate and the Annual Percentage Rate (APR), are not the same in the United States. The Contract Rate is used to calculate interest, and the APR is the result of a calculation.


The Contract Rate is the interest rate that the dealer, bank or finance company charges the borrower. In Simple Interest calculations, the Unpaid Balance is multiplied by the Contract Rate to determine the interest charged on a payment. The actual payment calculation looks like this:

Interest Due:
(Contract Rate/365) X ((Unpaid Balance) X (Number of Days since Last Payment))

Principal Due:
Subtract Interest Due from the Scheduled Payment.

Scheduled Payment:
Add Interest Due to Principal Due.

As you can see, the Contract Rate is used to calculate the Payment.


The APR is a different number, and the result of a calculation devised by the Federal Reserve Board to more accurately represent the true cost of a loan. The result of the APR calculation is always slightly different than the contract rate and must be plus or minus 0.125% of the Truth-In-Lending Disclosure shown on the Installment Sales Contract.

You can find APR Computations at the FDIC website:

The calculation is complicated, and requires a computer program to run the iterative calculations required to generate the APR.

As you can see, the APR is the result of a calculation.


Now you understand and can explain the difference between APR and Contract Rate to your customer, so that they understand the Installment Sales Contract that they are about to sign. It is important for you to share this information with the customer to prevent misunderstandings and feelings of deception. A satisfied and well informed customer will result in referrals, and years of ongoing successful relationships.


If you have additional questions please feel free to contact us at 330-726-9611 or email us at...





Authors of  Inexpensive yet powerful Used Car Lot Software for Used Car Lot Dealers requiring forms, invoices, buy here pay here financing, dealer inventory management, F&I, dealership reporting for existing dealers and people who want software for how to start and run a new used car dealership with auto dealer software.
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