APR Calculator
Calculate the Annual Percentage Rate (APR) on a loan from the interest rate, fees and term, the true cost of borrowing.
Written by Rahman · Last reviewed
Quick answer
Borrowing 20,000 at a quoted 6.5% over five years with 500 in fees means a payment of 391.32 and a true APR of 7.56%, a full percentage point above the quoted rate. That's because the fees come out of what you actually receive but not out of what you repay. It's the whole point of APR: it folds the fees into the rate, which is why it's almost always higher than the headline number, and why it's the figure to compare offers on.
APR spreads the fees across the loan term, so it answers "what rate would cost me this much if there were no fees?". The higher the fees or the shorter the term, the wider the gap from the stated rate — a 0% deal with real fees still has a real APR, which is exactly what the figure is for.
Results are estimates for general guidance and are not financial, tax or legal advice. Except where a calculator names a currency, figures carry no currency of their own: put in pounds and you get pounds back, put in rupees and you get rupees. Figures depend on the assumptions you enter and on rates that change over time. Check current rates and speak to a qualified adviser before acting on them.
About the APR Calculator
The Annual Percentage Rate (APR) is the true cost of borrowing expressed as a yearly rate. Unlike the stated interest rate, APR folds in fees (origination fees, closing costs, broker fees, mortgage insurance) spread across the loan term. Two loans with the same stated rate but different fees will have very different APRs.
Lenders in the US are legally required to disclose APR on consumer loans so borrowers can compare offers on a like-for-like basis. This calculator works backwards from a loan's fees, stated rate and term to give you the true APR.
Solve for APR: (P − fees) = payment × [1 − (1 + APR/12)^−n] / (APR/12)
P is the loan principal, n is the number of monthly payments. APR is the monthly rate that equates the net proceeds (principal minus fees) to the stream of payments.
What APR adds to the interest rate
The interest rate (the note rate) sets the monthly payment. APR answers a different question: what the borrowing really costs once you include the fees you have to pay to get it. Because those fees are charged upfront while the payments stay the same, APR is always at least the note rate, and the gap between the two shows you the fees.
On a $250,000 loan at 6.5% over 30 years, the payment is about $1,580 a month. Add $5,000 of financed origination and lender fees and the APR rises to roughly 6.70%, about 0.20 of a percentage point. That gap is exactly why APR has to be disclosed: two lenders quoting 6.5% aren't offering the same deal if one charges $1,000 in fees and the other $5,000.
- Compare APR against APR when the loans have the same term. Comparing one lender's note rate with another's APR makes the cheaper loan look more expensive.
- Which fees are included is defined by regulation and varies by product and jurisdiction, so third-party costs like some title fees may sit outside it.
- Paying discount points lowers the note rate and raises upfront cost, which APR captures, but only over the full term.
Where APR misleads, and how APY differs
APR spreads the fees across the whole stated term. If you repay or refinance early, those fees are spread over far fewer months, so the true yearly cost is higher than the quoted APR. That's why APR flatters long loans that people rarely keep to the end.
APY is its mirror image on the savings side. It shows what compounding adds rather than what fees add: 5% nominal compounded monthly is an APY of about 5.116%. APR on most loans deliberately leaves that compounding out, so the two can't be compared directly, even though they look like the same kind of percentage.
- A loan held for five years out of thirty carries a much higher effective cost than its APR implies.
- Variable-rate products quote an APR based on today's index level. It isn't a forecast, and the rate can move.
- Credit cards quote APR but compound monthly on carried balances, so the effective annual cost of a revolving balance exceeds the stated APR.
Frequently Asked Questions
Why is APR always higher than the stated rate?
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APR adds fees to the interest cost. Since fees are paid upfront but spread across the full term, they increase the effective cost rate. The shorter the term, the bigger the APR gap for the same fee amount.
Is a lower APR always better?
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Usually yes, but not always. If you plan to sell or refinance within a few years, paying a higher fee for a lower rate might not pay off, even if the APR looks better on a full-term basis.
What fees are included in APR?
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Origination fees, discount points, mortgage broker fees, underwriting fees, mortgage insurance premiums. Not included: title insurance, appraisal, attorney fees, prepaid interest.
Does APR apply to credit cards?
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Yes. Credit card APR is the annualised interest rate on unpaid balances. Unlike loan APR, it rarely includes fees (annual fees are separate). Credit card APR is a daily rate × 365.
Sources
- CFPB — Understand your Loan Estimate — Explains APR and Total Interest Percentage on the standard US disclosure.