Asked by Taylor Fujimoto on May 04, 2024
Verified
Should lending laws be changed to require lenders to report the EAR rather than the APR? Explain.
EAR
Effective Annual Rate, the actual return on an investment or the actual interest rate on a loan over one year, including compounding.
APR
Annual Percentage Rate, a comprehensive measure of the cost of borrowing on an annual basis, including interest and fees.
- Identify the differences between APR and EAR, along with their impacts on lending and borrowing parties.
- Appreciate the legal and ethical considerations in lending practices and the reporting of interest rates.
Verified Answer
ZK
Zybrea KnightMay 06, 2024
Final Answer :
It would be more meaningful for consumers to know the EAR rather than the APR. The EAR is slightly more difficult to calculate and also more difficult to explain, and may add confusion to the loan process. However, regardless of the costs, it would appear that consumers would benefit from learning what the EAR is as opposed to the APR.
Learning Objectives
- Identify the differences between APR and EAR, along with their impacts on lending and borrowing parties.
- Appreciate the legal and ethical considerations in lending practices and the reporting of interest rates.
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