APR is the actual interest paid for the amount financed annually, based on the monthly payment and the loan term.

The key term in this definition is amount financed. Today’s Truth in Lending disclosures use two terms on the form: amount financed and loan amount:
1. The amount financed is the amount you actually borrow before the costs and fees. Simplified: it is the amount of money you actually get.
2. The loan amount is the amount you actually owe after including the costs and fees financed in the loan. Simplified: it is the amount of debt you actually borrow.

D I D Y O U K N O W ?
The APR calculation was established by the federal government’s 1968 Truth in Lending Act to help borrowers understand the true cost of their loan. The intention was to create a simple indicator to help compare loan offers between different companies and protect consumers from being taken advantage of or fooled. The reasons for the APR calculation were all good. Unfortunately, the reality is that it has not accomplished its purpose. The vast majority of consumers do not understand and are confused by the APR.