Finance
APR Calculator
Calculate the true Annual Percentage Rate (APR) of a loan including upfront and monthly fees, and compare it to the nominal interest rate.
APR calculator
Annual Percentage Rate (APR)
8.57%
1.07% higher than the nominal rate of 7.50%.
Nominal rate
7.50%
Monthly payment
$400.76
Total interest
$4,046
Total fees
$500
Total cost of borrowing
$4,546
Interest plus all fees over the life of the loan.
Frequently Asked Questions about the APR Calculator
What is the difference between APR and interest rate?
The interest rate reflects only the cost of borrowing the principal. APR (Annual Percentage Rate) folds in upfront fees - origination charges, discount points, prepaid interest - plus any recurring monthly fees, then expresses the total as an annualized rate. Because APR captures the full cost of the loan, it is the right number to compare when shopping between lenders.
How is APR calculated?
First, the standard monthly payment (PMT) is computed from the loan amount and the stated interest rate. Then the calculator solves for the monthly rate at which the present value of those payments equals the loan amount minus upfront fees (the cash you actually receive). That monthly rate is multiplied by 12 to produce the APR. Monthly fees, if any, are added to each payment before solving.
Can you show a quick example?
On a $250,000 30-year loan at 6.5% with $5,000 in upfront fees, the base monthly payment is about $1,580. You net only $245,000 at closing but still owe $1,580 per month for 360 months, so the effective annualized rate works out to roughly 6.69% - the APR. The 0.19-percentage-point gap is the cost of those fees spread over the loan term.
Why is APR required by law in the US?
The Truth in Lending Act (TILA) requires lenders to disclose APR on consumer credit so borrowers can compare offers on equal footing, regardless of how fees are packaged. APR appears on every mortgage Loan Estimate and Closing Disclosure. Lenders who omit or misstate it face civil liability under TILA.
What is a common pitfall with APR?
APR assumes you hold the loan for its full term. If you sell or refinance after, say, 5 years on a 30-year mortgage, the upfront fees were not spread over 30 years as the APR implies - your real effective rate was higher. The shorter you expect to keep a loan, the more weight you should put on fees rather than the stated APR alone.