APR and APY may look very similar, but they measure different things. Knowing what they mean can help you make better financial choices, especially in the context of cryptocurrencies.
What is APR?
APR or annual percentage is the cost of borrowing currency in the year. In encryption, it is usually used for loans or Put down the rewardEssence This is just interest rate, but does not complicate APR.
For example, if you borrow a $ 1,000 encrypted loan with a 10 % APR, you will pay a $ 100 interest one year later. There is no additional cost or compound profit.
exist defiAPR is usually applied to lending or borrowing tokens. If you borrow 5 % APR in a year and borrow 5 % APR, it is 5 % of the principal. But remember that APR will not consider your payment frequency or how to invest in these payment can increase your return.
What affects your APR?
For example, many things can determine your APR, such as:
- Credit score: If your credit score is good, then your APR is low, but if your credit score is poor, you may get a high degree of APR.
- Loan type: Various loans have different APRs. For example, compared with credit cards, the APR of mortgage loans is low.
- Loan side: For the same type of loans, various banks or lenders may provide different APRs.
- Loan amount and period: The amount you borrowed and how long you can repay can change the APR. Therefore, short loans may have lower APR.
- Market price: If the interest rate in the economy increases, your APR may increase.
- down payment: The more important the down payment, the better the APR given by the loan party.
April and interest rate
APR is similar to interest rates, but different. Interest rates are basic interest rates, and APR includes fees. For example, if you get an encrypted loan with a 5 % interest rate and a 2 % platform fee, the APR will become 7 %. APR helps borrowers to understand the total cost of borrowing.
What is APY?
APY or annual percentage yields will measure your measuring how much returns you earn in savings or investment through complex interest. When the interest you get adds your original amount to your original amount, the complexity will occur, and then earn interest. In cryptocurrencies, according to the different platforms, compounds occur every week or month every day or month.
For example, if you deposit a $ 1,000 cryptocurrency into a savings account, you have compounded monthly, and your annual income exceeds $ 50. This is because every month, your income will be added to your balance, thereby increasing the calculation amount of future interest.
APY and interest rate
The interest rate only reflects simple annual returns, and APY considered complex consideration. For example, 10 % of the monthly composite will be slightly higher than 10 % per year. This is why APY is more useful for understanding the actual return.
APR and APY: What is the difference?
| APR (annual percentage) | APY (annual percentage) | |
| definition | The annual cost of measuring borrowing or return on investment does not include composite | Measure the annual investment return rate, including composite |
| complex | No | Yes |
| Use cryptocurrencies | Loans and rewards | Farming, accumulation and savings. |
| calculate | Simple interest for more than a year | Considering the frequency of composite, more than a year of compound interest |
| Effect on cost/benefits | Direct estimation cost or return | Express the return of compound more accurately |
| Example (borrow) | Borrowed 10 % APR borrowed $ 1,000 and paid $ 100 interest within a year | Borrowed 10 % APY borrowed $ 1,000 |
| Example (save) | APR 10 % of the shares of $ 1,000, earning $ 100 in a year | Equity $ 1,000 is $ 1,000 with 10 % APY, and earns more due to complexity |
| Associate | Better understand the cost of lending | Better understand investment growth |
example
This is an example of understanding the difference between APR and APY:
- Borrowing: If you get a $ 1,000 cryptocurrency loan in April, you will owe $ 120 a year later. However, if the monthly application is compounded and the rate is expressed as an APY, your total cost may be close to $ 126.
- save: If you put $ 5,000 in the pool and store it with 12 % of the APY per month, your income will exceed $ 600 due to the complexation effect.
Borrower’s point of view
Annual percentage (APR) is the most important number to pay attention to when borrowing. This is the number that allows you to see the average level The cost of the baseline of the loan isEssence For example, if you borrowed $ 5,000 in Stablecoins in April in April, you will know that if there is no complexity, you will get a $ 600 interest one year later.
However, borrowing in cryptocurrencies is not so simple. Although APR provides a simple picture, many platforms use composite, which makes The actual cost is higher than the referenced APREssence In this case, effective interest rates are more similar to APY. The borrower needs to check the terms of the loan agreement carefully “Compound frequency” or “efficient” Avoid surprise.
In addition, the crypto loan market is affected by the fluctuations and liquidity of assets. If you borrow a highly volatile cryptocurrency, the platform may dynamically adjust the rate. In this case, APR may change, resulting in variable costs. The borrower needs to monitor these changes and plan to repay accordingly to avoid higher expected costs.
There are also some expenses specific to the platform that can greatly increase APR. Some of the APRS on some scattered financial platforms include these costs, while others appear separately. Differences make it difficult to carry out platforms, but it is necessary for accurate borrowing estimates.
The point of savings
Annual percentage (APY) is more related to savings or investors, because it shows that your funds will increase with the increase of account compound rights. This aspect is particularly important for cryptocurrencies, because breeding or liquidity usually involves relatively frequent compounds. The greater the frequency of composite, the higher the actual return rate.
For example, if you add 10 % of APY to $ 10,000 in the DEFI pool every day, then your return will exceed 10 % of the simple $ 1,000 to you. Instead, according to the frequency of composite, your composite return may increase to $ 1,051 or higher. For a longer time, this difference is more obvious, making APY a better actual growth indicator.
When the APY of the Savings is compared, the reliability and stability of the platform should be at the forefront. Compared with the monthly or annual compound platforms, more complicated platforms every day or week often provide betterEssence
APR and APY: Which is better?
Both APR and APY are born better. This depends on your goal. If you want to borrow, please focus on APR to understand the basic cost. If you want to save or invest, check the APY to view your funds that can grow with compound interest.
Some liquidity provides a huge yield in decentralized communication (DEX), especially in the cause coin, because:
- Liquidity and slipping: New or unpretentious pairs that may provide higher yields to attract liquidity providers and reduce slip.
- lack: Limited token supply can increase demand, thereby bringing better benefits to liquidity providers.
For example, if you want to borrow a stable person on the DEFI platform, the daily compound APY is 8 %, which will generate more than 8 % APR. However, if you want to loan, the lower APR will be more favorable because it means that the interest pays less.
The cryptocurrency agreement also uses APR and APY in many ways. For example:
- The liquidity pool in DEX: Platforms like Raydium, Uniswap and Sushiswap, reward liquidity provider APR. Rewards usually include trading fees and reward token.
- Posted in CEXS: A centralized communication such as Binance shows Stric Kearwards in APR. However, you can enable automatic saving on Binance. Here, your reward will automatically add to your balance, thereby effectively turning APR into APY.
In DEX like Raydium, increasing liquidity in Memecoin may be highly attracted to the advantages of APR, but the high risk of returns returns is high risk
in conclusion
In short, understand The difference between APR and APY It is important. APR is an ideal choice for borrowing costs, and APY is more suitable for understanding investment growth. These two indicators are essential to make wise financial decisions. Always compare these rates carefully, read the terms, and then choose to keep the same content as your financial goals.
Frequently Asked Questions Answers
Is it better to earn APR or APY?
Usually Earn the APY better than APR If you want to support your own money. APY includes the effect of composite interest, which means that you can earn interest from the money you deposited and the interest you have earned. This can help your money grow.
On the other hand, APR only means how much interest you pay or earn without expecting composite interest. Therefore, if you save money, APY is usually better, because it will bring you higher returns over time.
What is a good APR rate?
Good APR interest rate depends on your borrowing method. If it is a credit card, so good APR is usually 15 % to 20 %, but if some people’s credit scores are excellent, some people can get lower APR.
The APR of mortgage loans is good below 4 % to 5 %. The encrypted loan APR is about 10 %. The lower the APR, the less interest you will work overtime. Always stroll around and compare the costs of comparison.
What is the 5 % APY in April?
To convert 5 % APY to APR, first understand the meaning of composite in APY and the lack of composite in APR. 5 % APY is almost equal to 4.88 % APRCalculated according to the frequency of composite interest.
This is because the more interest, the higher the APY and APR. You can use this formula to figure out the real APR, but in general, at the same speed, APY will be higher than APR.
Can APR and APY rate be changed?
Yes, the APR and APY rates may be different. Your APR will be different due to the increase in interest rate loans or reducing interest rates with the market change or the market change.
If the bank changes the interest rate provided, or if they change their complex interests, your APY may be different. It is important to check your price regularly to see if they have changed and ensure that you still get rich transactions.
What is the difference between interest rates on CD and APY?
The interest rate of CD (deposit certificate) shows how much interest you will get in one year, but does not include the effect of composite. Instead, APY shows how much money you will make within a year if the interest is complicated, which means that you will make interest on deposit and increased interest.
Therefore, APY mentioned how much your investment will grow. If your CD increases interest more frequently, the APY will be higher than interest rates.
The position of APR and APY: What is the difference? The first appeared in NFT night.
