APR Calculator: The True Cost of a Loan
Lenders advertise the interest rate, but fees quietly inflate what you really pay. This free APR calculator takes a quoted rate plus upfront fees and works out the real annual percentage rate — the number you should actually compare when shopping for any loan.
APR Calculator
How to Use This Calculator
Enter the loan amount, the interest rate the lender quoted, and the loan term in months. Then add up every upfront fee in the offer — origination fees, discount points, closing costs — and enter the total.
Click Calculate. The tool shows your monthly payment, the total interest, and the effective APR: the yearly rate that, when applied to the amount you actually receive, produces exactly that payment. The wider the gap between the quoted rate and the APR, the more the fees are costing you.
The Formula
The APR is the interest rate r that satisfies amount received = payment × [1 − (1 + r)⁻ⁿ] ÷ r, where the amount received is the loan amount minus fees, and the payment comes from the quoted rate. There is no closed-form solution, so the calculator finds r by bisection — repeatedly testing the midpoint of a rate interval until it converges.
Worked example: a $20,000, 60-month loan quoted at 6% with $600 in fees. The monthly payment at 6% is $386.66. You receive $19,400. The rate that makes $386.66 × 60 payments equal $19,400 in present value is about 7.2% — the effective APR. The $600 fee costs you a full 1.2 points of extra rate.
Tips
Always compare loans on APR with the same term. A 5% 72-month loan can easily cost more in total than a 5.5% 48-month loan.
On mortgages, ask for the Loan Estimate form — it lists APR on page 3, plus every fee, in a standardized layout designed exactly for comparison shopping.
If the gap between quoted rate and APR is more than about 0.5 points, ask the lender to itemize the fees. Often one line item (like a "processing fee") is negotiable or removable.
Frequently Asked Questions
What is the difference between interest rate and APR?
The interest rate is the base price of borrowing — the percentage charged on your balance each year. APR (annual percentage rate) is the total cost: it folds in most mandatory fees such as origination fees, points and closing costs, expressed as a yearly rate. Two loans can quote the same interest rate but have very different APRs, which is why APR is the fair comparison number.
Is a lower interest rate always better?
Not necessarily. A loan with a 5% rate and $3,000 in fees can cost more than a loan with a 5.5% rate and no fees, especially for short loan terms where the fees are spread over fewer months. Compare APRs on loans of the same term — that tells you which offer is genuinely cheaper.
Why is my APR higher than my interest rate?
Because APR includes costs beyond interest — origination fees, discount points, mortgage insurance and some closing costs. The bigger the fees relative to the loan amount and the shorter the loan term, the wider the gap between the quoted rate and the APR. A big gap is a signal to re-read the fee schedule.
Does APR include everything?
No. Some charges are excluded from APR by law — for example, certain title, notary and appraisal fees on mortgages, and late-payment penalties. APR is still the best single number for comparing similar loans, but read the full fee list before signing.
When does APR matter most?
APR matters most for loans with upfront fees — mortgages, personal loans with origination fees, and auto loans with dealer fees. For a no-fee loan (like many credit cards for purchases you pay off in full, or a fee-free personal loan), APR and the interest rate are essentially the same.