About the APR Calculator
APR restates a loan's cost with its fees included, which is why it is the only fair way to compare offers. A loan with a low headline rate and heavy origination charges can easily cost more than a higher-rate loan with none — the nominal rate hides that, and APR exposes it.
The formula
APR solves: Pmt = (P − fees) · [ r(1+r)ⁿ ] / [ (1+r)ⁿ − 1 ]The payment is computed from the full principal at the nominal rate, but APR is the rate that produces that same payment from the net amount you actually received after fees. There is no closed form; it is found by iteration.
How to use this calculator
- 1Enter your Loan Amount ($). The field starts at
200000, which you can overwrite. - 2Enter your Nominal Interest Rate (%). The field starts at
6.5, which you can overwrite. - 3Enter your Total Loan Fees ($). The field starts at
4000, which you can overwrite. - 4Enter your Loan Term (Years). The field starts at
30, which you can overwrite. - 5Read the result straight away — it recalculates as you type, so there is no button to press. Use Share to copy a link that reopens the page with your exact numbers filled in.
Worked example
| Input | Value |
|---|---|
| Loan Amount ($) | 200000 |
| Nominal Interest Rate (%) | 6.5 |
| Total Loan Fees ($) | 4000 |
| Loan Term (Years) | 30 |
Result
APR: -287.286%
Nominal Rate: 6.50%
Monthly Payment: $1264.14
Those are the values the page loads with, so you can reproduce this result yourself and then change one field at a time to see what drives the outcome.
Understanding your result
Because fees are spread across the whole term, the gap between nominal rate and APR narrows the longer you hold the loan. On a 30-year mortgage, 4,000 dollars of fees might add only a fifth of a point. Repay or refinance that loan in year three and the effective cost is far higher than the APR implies.
That is APR's main blind spot: it assumes you keep the loan to maturity. Most people do not. If you expect to move or refinance within a few years, compare total cost over your realistic holding period instead, because paying points to buy a lower rate rarely pays back that quickly.
Things worth knowing
- US lenders must disclose APR under the Truth in Lending Act. Ask for it in writing and compare offers on the same day, since rates move.
- Mortgage APR conventionally includes origination, discount points, and mortgage insurance, but not title or appraisal fees, so it is not a complete cost figure.
- Credit card APR works differently — there are no origination fees, so the APR is simply the annualised rate, and it may be variable.
- A large gap between the nominal rate and the APR is a signal to ask exactly which fees are driving it.
- APR is not APY. APR ignores compounding within the year; APY includes it.
Frequently asked questions
What is the difference between interest rate and APR?+
The interest rate determines your payment. APR expresses the rate plus lender fees as a single annual percentage, so it reflects the true cost of borrowing and lets you compare loans whose fee structures differ.
Why is my APR higher than my interest rate?+
Because fees are included. You pay interest on the full amount borrowed but only receive it minus origination charges and points, so the effective cost of the money you actually got is higher than the nominal rate.
Should I always choose the loan with the lowest APR?+
Only if you intend to keep it for the full term. APR spreads upfront fees across the whole term, so if you expect to sell or refinance early, a higher-APR loan with lower fees can cost you less.
Is a 0 percent APR offer really free?+
Sometimes, but check the term and the fallback. Promotional rates often carry deferred-interest clauses that back-charge the entire promotional period if the balance is not cleared in time, and car deals may require forgoing a cash rebate.