APR Calculator
Calculate the true APR of a loan including fees and closing costs. Compare nominal interest rate vs. effective APR to see the real cost of borrowing.
For informational purposes only. Not financial advice. Calculations are estimates and may not reflect your exact situation. Consult a qualified financial adviser for personalised guidance.
About APR Calculator
Calculate the true Annual Percentage Rate of any loan by factoring in fees, closing costs, and other upfront charges. Enter your loan amount, interest rate, term, and all associated fees to see the effective APR compared to the nominal rate. This is the single most important number when comparing loan offers.
What Is APR and Why Does It Matter?
The nominal interest rate only tells you part of the story. APR (Annual Percentage Rate) rolls all borrowing costs into a single rate, making it possible to compare loans fairly. Under the Truth in Lending Act (TILA) in the US and the Consumer Credit Act in the UK, lenders are required to disclose the APR.
Example: Two mortgage offers for $300,000 over 30 years:
| Loan A | Loan B | |
|---|---|---|
| Interest rate | 6.25% | 6.50% |
| Origination fee | $6,000 (2%) | $0 |
| Other fees | $3,000 | $1,500 |
| Total fees | $9,000 | $1,500 |
| Monthly payment | $1,847 | $1,896 |
| APR | 6.52% | 6.54% |
Loan A has a lower interest rate but higher fees. Once fees are included, the APRs are nearly identical. Loan B might actually be better if you plan to refinance or sell within a few years, because the lower upfront cost matters more over short periods.
How Is APR Calculated?
APR is the interest rate that would produce the same monthly payment if all fees were added to the loan balance. The formula is iterative (solved with Newton's method), but the concept is simple:
Effective Loan Amount = Principal + All Fees
APR = rate where payment on Effective Loan Amount equals actual payment on original Principal
Worked example: $200,000 loan at 6% for 30 years with $4,000 in fees:
- Monthly payment (on $200,000 at 6%): $1,199.10
- Effective loan amount: $204,000
- APR is the rate where $204,000 produces a $1,199.10 payment over 360 months: 6.18%
- The 0.18% APR increase reflects the $4,000 in fees spread over 30 years
What Fees Are Included in APR?
| Included in APR | Not Included in APR |
|---|---|
| Origination/underwriting fees | Home inspection |
| Discount points | Title search fees |
| Mortgage broker fees | Title insurance (in most cases) |
| Closing costs charged by lender | Recording fees |
| PMI (private mortgage insurance) | Appraisal (varies by lender) |
| Prepaid interest | Attorney fees |
The line between included and excluded fees varies by lender and regulation. When comparing APRs from different lenders, ask which fees are factored in. Some lenders exclude optional fees to make their APR look lower.
APR vs APY: Two Different Measures
These terms sound similar but measure different things:
| APR | APY (or EAR) | |
|---|---|---|
| Stands for | Annual Percentage Rate | Annual Percentage Yield |
| Includes compounding? | No | Yes |
| Used for | Loans (what you pay) | Savings (what you earn) |
| Example at 6% monthly compound | 6.00% | 6.17% |
| Regulation | TILA (Truth in Lending) | TISA (Truth in Savings) |
For loans, APR is the standard disclosure. For savings accounts and CDs, look at APY. A savings account advertising 5% APR compounds to 5.12% APY with monthly compounding.
How Fees Affect Short vs Long-Term Borrowing
The same fees have a much larger impact on short-term loans because they are spread over fewer payments:
| Loan Term | Rate | $4,000 in Fees | APR | Rate-APR Gap |
|---|---|---|---|---|
| 5 years | 6.00% | $4,000 | 6.68% | 0.68% |
| 10 years | 6.00% | $4,000 | 6.36% | 0.36% |
| 15 years | 6.00% | $4,000 | 6.25% | 0.25% |
| 30 years | 6.00% | $4,000 | 6.13% | 0.13% |
On a 5-year loan, $4,000 in fees adds 0.68% to the effective rate. On a 30-year mortgage, the same fees add only 0.13%. This is why fees matter more for short-term borrowing and why "no-fee" options are more attractive for people who might refinance or move within a few years.
Discount Points: Buying Down the Rate
A "point" costs 1% of the loan amount and typically lowers the rate by 0.25%. Is it worth it?
Example: $300,000 loan, 30 years. Option A: 6.5% with no points. Option B: 6.25% with 1 point ($3,000).
- Option A payment: $1,896/month
- Option B payment: $1,847/month
- Monthly savings: $49
- Break-even: $3,000 / $49 = 61 months (about 5 years)
If you keep the loan longer than 5 years, the point pays for itself. If you sell or refinance sooner, you lose money on the deal. Use this calculator to compare the APR of both options.
For monthly payment estimates, the mortgage calculator handles standard mortgages. To see a full payment schedule, the amortization calculator shows every payment split between principal and interest. To work backwards from a payment to find the rate, use the interest rate calculator.
All calculations run locally in your browser. No data is sent anywhere.
Frequently Asked Questions
What is APR and how is it different from interest rate?
APR (Annual Percentage Rate) is the true cost of borrowing expressed as a yearly rate. Unlike the nominal interest rate, APR includes fees like origination charges, closing costs, and other upfront expenses. A loan at 6% with high fees might have a 6.5% APR, making it more expensive than it first appears.
How is APR calculated?
APR is found by determining the interest rate that would produce the same monthly payment if all fees were rolled into the loan amount. This effectively spreads the cost of fees over the entire loan term, giving a single rate that reflects the true annual cost.
Why is APR important when comparing loans?
Two loans can have the same interest rate but very different APRs due to fees. A loan with a lower rate but high fees might actually cost more than one with a slightly higher rate and no fees. Comparing APRs gives you an apples-to-apples view of total borrowing cost.
What fees should I include in the APR calculation?
Include all upfront fees that are part of the borrowing cost, such as origination fees, application fees, closing costs, broker fees, discount points, and mortgage insurance premiums. Do not include fees you would pay regardless of the loan, like home inspection or title insurance.
Is a lower APR always better?
Generally yes, but consider the loan term and your plans. A loan with a lower APR spread over 30 years costs more in absolute terms than a higher-APR loan over 15 years. Also, if you plan to sell or refinance early, upfront fees have less time to amortize, making the effective cost higher.
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