APR Calculator
Calculate the true Annual Percentage Rate (APR) of your loan including all fees and costs
Loan Details
Fees & Costs
True APR
7.42%
Stated Interest Rate
7.00%
Total Loan Cost
$29,951.80
Total Fees
$250.00
APR is 0.42% higher than stated rate
This loan has reasonable fees relative to the interest rate.
Cost Breakdown
Total Cost Composition
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APR vs Stated Rate Comparison
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Important Disclaimer
Not Financial Advice: This calculator provides estimates for educational and informational purposes only.
- Results are based on the information you provide
- Actual results may vary based on individual circumstances
- Consult a qualified professional before making financial decisions
What is APR?
APR (Annual Percentage Rate) is the true yearly cost of a loan, expressed as a percentage. Unlike the interest rate, which only reflects the cost of borrowing the principal, APR includes:
- •Interest charges - The cost of borrowing the principal amount
- •Origination fees - Charges to process and originate the loan (typically 1-8% of loan amount)
- •Application fees - One-time charges to apply for the loan
- •Closing costs - Fees paid at loan closing (more common in mortgages)
- •Processing and underwriting fees - Administrative costs
Example: Why APR Matters
Loan A: Low Interest, High Fees
$10,000 at 5% interest for 3 years
Origination fee: $500 (5%)
True APR: ~6.6%
Total cost: $11,329
Loan B: Higher Interest, Low Fees
$10,000 at 6% interest for 3 years
Origination fee: $100 (1%)
True APR: ~6.4%
Total cost: $11,055
Even though Loan A has a lower interest rate (5% vs 6%), Loan B is actually cheaper due to lower fees! Always compare APRs, not just interest rates.
Why APR Matters When Comparing Loans
The Truth in Lending Act (TILA) requires lenders to disclose the APR to help borrowers compare loan offers fairly. Here's why focusing on APR is crucial:
Hidden Costs Revealed
APR exposes the true cost of "low-rate" loans that charge high upfront fees. A 4% loan with 6% in fees could cost more than a 6% loan with 1% in fees.
Apples-to-Apples Comparison
When comparing loans with different terms, rates, and fee structures, APR provides a standardized metric that accounts for all costs over the loan's lifetime.
Long-Term Impact
Even a 1% difference in APR can cost thousands over a loan's lifetime. A $25,000 loan at 8% APR costs $3,265 in interest over 5 years, while 9% APR costs $3,700 - that's $435 more!
Important Note
APR assumes you'll keep the loan for its full term. If you plan to pay off the loan early, upfront fees have a bigger impact on the true cost. In that case, a lower-fee loan might be better even if the APR is slightly higher.
📊 Understanding APR vs Interest Rate
Many borrowers confuse APR and interest rate. While related, they measure different things and both are important when evaluating loans.
💵 Interest Rate
What It Is:
The percentage charged on the principal loan amount only. This is what you see advertised as the "rate."
What It Includes:
- ✅ Cost of borrowing the principal
- ❌ Origination fees
- ❌ Application fees
- ❌ Closing costs
- ❌ Processing fees
Used For:
Calculating your monthly payment amount. The interest rate determines how much interest accrues each month.
Example:
$10,000 loan at 6% interest for 3 years = $304/month
*Fees not included in this calculation
📈 APR (Annual Percentage Rate)
What It Is:
The total yearly cost of the loan, including interest AND all fees, expressed as a percentage.
What It Includes:
- ✅ Cost of borrowing the principal
- ✅ Origination fees
- ✅ Application fees
- ✅ Closing costs
- ✅ Processing fees
Used For:
Comparing loan offers fairly. APR shows the true cost, making it easier to compare loans with different fee structures.
Example:
$10,000 loan at 6% interest + $500 fees = 7.15% APR
*Total cost over loan lifetime is higher
Quick Comparison:
| Factor | Interest Rate | APR |
|---|---|---|
| Includes fees? | ❌ No | ✅ Yes |
| Used for monthly payment? | ✅ Yes | ❌ No |
| Best for comparing loans? | ❌ No | ✅ Yes |
| Shows true cost? | ❌ Partial | ✅ Complete |
| Required by law to disclose? | ✅ Yes | ✅ Yes (TILA) |
| Which is higher? | Lower | Higher (unless zero fees) |
💡 Real-World Example: Why Both Matter
Scenario: You're comparing two $20,000 car loans for 5 years
Loan A: "Low Rate"
- Interest Rate: 5.0%
- Origination Fee: $1,200 (6%)
- APR: 6.98%
- Monthly Payment: $377
- Total Cost: $23,862
Loan B: "Higher Rate"
- Interest Rate: 6.0%
- Origination Fee: $200 (1%)
- APR: 6.41%
- Monthly Payment: $387
- Total Cost: $23,420
🎯 Winner: Loan B - Even though the interest rate is higher (6% vs 5%), the lower fees make it $442 cheaper overall. The APR (6.41% vs 6.98%) correctly reveals this!
Focus on Interest Rate When:
- ✅ Calculating your monthly budget
- ✅ Figuring out how much interest accrues
- ✅ Comparing loans with identical fees
- ✅ Using amortization calculators
Focus on APR When:
- ✅ Comparing different lenders
- ✅ Evaluating total loan cost
- ✅ Loans have different fee structures
- ✅ Shopping for the best overall deal
💡 Pro Tip: Always ask lenders for both the interest rate and APR. If a lender only advertises the interest rate, ask about fees. The difference between the two numbers tells you how much you're paying in fees. A big gap = high fees!
Frequently Asked Questions
What's the difference between APR and interest rate?
The interest rate is the cost of borrowing the principal loan amount, expressed as a yearly percentage. The APR includes the interest rate plus all fees (origination, application, closing costs, etc.) spread over the loan term. APR is always higher than the interest rate unless there are zero fees.
Why is APR higher than my interest rate?
Lenders charge various fees (origination fees, application fees, processing fees) on top of interest charges. The APR calculation factors these fees into an annualized rate, showing the true yearly cost. A $10,000 loan at 6% interest with $300 in fees has a higher APR (around 7.2%) because those fees increase your total borrowing cost.
How do lenders calculate APR?
Lenders calculate APR by finding the interest rate that makes the present value of all your monthly payments equal to the net loan amount (loan amount minus fees). This is done using the same formula as this calculator - an iterative Newton-Raphson method that converges on the true APR. Federal law (Truth in Lending Act) requires lenders to disclose this APR before you sign loan documents.
Should I focus on APR or interest rate when comparing loans?
Always focus on APR for accurate loan comparisons. The interest rate alone can be misleading because it doesn't include fees. A lender advertising a "5% rate" with high fees might actually cost more than a "6% rate" with low fees. APR gives you the full picture. However, if you plan to pay off the loan very quickly (within a year), calculate the actual dollar cost including fees rather than relying solely on APR.
What fees are included in APR?
APR includes: origination fees, application fees, processing fees, underwriting fees, and closing costs. It does not include late payment fees, prepayment penalties, or optional insurance products. For mortgages, APR includes points, mortgage insurance premiums, and most closing costs. Credit card APRs typically don't include annual fees or balance transfer fees.
Can APR be lower than the interest rate?
No, APR cannot be lower than the interest rate. APR includes all costs (interest + fees), so it's always equal to or higher than the interest rate. If a lender shows an APR lower than the interest rate, it's an error. The only exception is if the loan has negative fees (lender credits), which is rare and typically only happens in mortgage refinancing scenarios where the lender offers credits to cover closing costs.
When to Use the APR Calculator
Perfect Use Cases
- ✓Comparing multiple loan offers with different fee structures
- ✓Personal loans with origination fees
- ✓Mortgages with points and closing costs
- ✓Auto loans with documentation and registration fees
- ✓Student loan refinancing to understand true cost savings
How to Use It
- Enter loan amount and stated interest rate from your loan offer
- Select loan term (number of years to repay)
- Add all fees: origination, application, processing, closing costs, etc.
- Toggle between $ and % for each fee type
- Review True APR and compare with other loan offers
- Choose the loan with the lowest APR for the best deal
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