To compare credit prices, you need to know

1. Finance charge

   The total amount you pay to use the credit including interests, service charge, insurance premium, and appraisal fees.

2. APR

   APR is an annual percentage rate which is the percentage of costs (relative costs) of credit on a yearly basis.

Truth in Lending Law (Regulation Z) requires disclosure of both finance charge and APR. So, when comparing credit, look for these items. If you are not provided with them, ask for them.

An easy way to calculate APR (Annual Percentage Rate) approximately is as follows:

Approximate APR =   ( 2 x n x I ) / {P x (N + 1)}

Where

n = number of payment periods in 1 year

For example,

if payments are received monthly  n = 12

if payments are received weekly   n = 52

I = dollar cost of credit

P = the principal or loan amount

N = number of payments scheduled to pay off the loan

$100 at 10% paid at year end:

n = 1

I = $10 (10% of $100)

N = 1

P = $100

Therefore,

APR = (2 x 1 x $10)/ {$100 x (1+1)} = 0.10 or 10%

$100 at 10% paid in 12 payments (not taking declining balance into account):

n = 12

I = $10 (10% of $100)

N = 12

P = $100

Therefore,

APR = (2 x 12 x $10)/ {$100 x (12+1)} = 0.1846 or 18%