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APR Calculator
Calculate the true annual percentage rate of a loan including all fees and closing costs.
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APR
Total Interest
Total Cost of Loan
Calculated in your browser. We never see your numbers.
What Is APR and Why Does It Matter?
The Annual Percentage Rate (APR) represents the true yearly cost of borrowing money, expressed as a percentage. Unlike the nominal interest rate, APR factors in fees and other charges — origination fees, closing costs, points — that a lender charges to issue the loan. This makes APR the single most important number for comparing loan offers.
For example, a loan advertised at 5.5% interest with a 1% origination fee on a $20,000 balance will carry a higher APR than its stated rate. By law in the United States (Truth in Lending Act), lenders must disclose the APR alongside the interest rate so borrowers can make fair comparisons.
How APR Is Calculated
APR is found by solving for the rate that makes the present value of all loan payments equal to the net amount received by the borrower (loan amount minus fees). This is the same time-value-of-money equation used in financial mathematics:
Net Loan = PMT × (1 − (1 + r)−n) / r
Where r is the monthly rate, n is the number of payments, and PMT is the monthly payment. Because this equation can't be solved algebraically for r, this calculator uses the Newton-Raphson numerical method — the same iterative approach used by financial institutions — to converge on the precise rate within a tolerance of 0.0000001%. The monthly rate is then multiplied by 12 to give the annual APR.
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Frequently Asked Questions
What is APR?
APR is the annual cost of a loan including fees and interest, expressed as a percentage. It's more comprehensive than the nominal interest rate because it captures the total cost of borrowing, making it the most useful number for comparing loans side by side.
How is APR different from the interest rate?
The interest rate only reflects the cost of borrowing the principal. APR includes fees like origination charges, making it a better comparison tool. Two loans with the same interest rate can have different APRs if one has higher fees.
What fees are included in APR?
Origination fees, closing costs, mortgage points, and other lender fees are typically included in APR. Insurance and taxes are generally not included. The exact fees included can vary by loan type and lender.
Is a lower APR always better?
Generally yes — lower APR means lower total borrowing cost. But compare loan terms carefully; a lower APR on a longer loan may cost more total interest over the life of the loan than a higher APR on a shorter term.
How do I use the APR calculator?
Enter the loan amount, term, monthly payment, and total fees. The calculator finds the true APR using the same present-value method lenders are required to disclose. The result shows your true borrowing cost as a percentage.
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