What is APR and how is it different from interest rate?

APR (Annual Percentage Rate) includes the interest rate plus mandatory fees, expressed annually. It provides a more complete cost of borrowing than interest rate alone.

Why is APR higher than the stated interest rate?

APR includes origination fees, points, closing costs, and other mandatory charges. These additional costs are spread across the loan term, increasing the effective annual rate.

How do I use APR to compare loan offers?

Compare APRs from different lenders for the same loan term. The lower APR typically represents the better deal, though consider whether you'll keep the loan long enough to realize savings.

What fees are included in APR calculation?

APR includes origination fees, discount points, mortgage insurance, and most closing costs. It excludes title insurance, appraisal fees, and some third-party fees that vary by location.

Is a lower APR always better?

Usually yes, but consider the loan term and your plans. A lower APR with high upfront costs may not be better if you plan to refinance or sell soon. Calculate break-even points.

How does APR work for credit cards?

Credit card APR represents the annual cost of carrying a balance. Unlike mortgages, credit card APR usually equals the interest rate since most cards have no annual fees factored in.

What is the difference between fixed and variable APR?

Fixed APR stays constant throughout the loan term. Variable APR changes based on market conditions, usually tied to an index like the prime rate. Variable rates often start lower but can increase.

How accurate is APR for comparing loans?

APR is most accurate when comparing loans with the same term and similar structures. For different loan types or terms, also consider total interest paid and monthly payment amounts.

APR Calculator

Calculate the true annual percentage rate of loans

Instant results•No signup•Estimates only

Loan Amount

Interest Rate

Loan Term

Origination Fee

Other Fees

True APR

12.26%

vs 8.00% stated rate

Monthly Payment

$313

Total Fees

$600

Total Interest Paid

$1,281

Visualization

Monthly Payment Breakdown

Principal$700(70%)

Interest$300(30%)

Monthly Payment: $1,000

Results are estimates and may vary based on lender terms and fees.

Results are estimates for informational purposes only and do not constitute financial advice. Actual results may vary based on lender terms, fees, and other factors.

How calculations work Full disclaimer

APR Calculator Formula

A PR = (\frac{Interest + Fees}{Principal}) \times \frac{365}{Days} \times 100

APR represents the true annual cost of borrowing, including both interest and fees, expressed as a percentage. It allows comparison between loans with different fee structures by standardizing the cost on an annual basis.

How the APR Calculator Works

1Enter the loan principal amount
2Input the stated interest rate
3Add all loan fees (origination, points, etc.)
4Specify the loan term
5View the true APR and compare it to the stated rate

APR Calculator Key Terms

APR: Annual Percentage Rate—the true yearly cost of borrowing including interest and fees, allowing apples-to-apples loan comparison.
Interest Rate: The basic cost of borrowing principal, not including fees. APR is always equal to or higher than the interest rate.
Origination Fee: A fee charged by lenders for processing a loan, typically 0.5-1% of the loan amount.
Points: Prepaid interest where 1 point equals 1% of the loan amount, used to buy down the interest rate.

APR Calculator Tips

•Always compare APRs, not just interest rates, between loan offers
•APR is legally required to be disclosed on loan documents
•Shorter loan terms have higher effective APR impact from fixed fees
•Zero-fee loans often have higher rates—calculate total cost both ways
•Points can be worthwhile if you'll keep the loan long enough to recoup the cost

When to Use This APR Calculator

✓Comparing loan offers with different fee structures
✓Understanding the true cost of a loan with significant fees
✓Evaluating whether paying points is worthwhile
✓Making informed mortgage shopping decisions
✓Comparing stated rates versus actual borrowing costs

APR Calculator Examples

Personal Loan with Fees

Loan:$10,000Rate:8%Term:36 moFees:$500

Result:11.2% APR

A $500 origination fee on a $10,000 loan increases the effective rate from 8% to 11.2% APR.

Mortgage APR

Loan:$300,000Rate:6.5%Term:30 yrClosing:$8,000

Result:6.73% APR

Closing costs add 0.23% to the stated rate, resulting in 6.73% APR over the loan term.

No-Fee Comparison

Loan:$20,000Rate:7%Term:48 moFees:$0

Result:7.0% APR

Without additional fees, the APR equals the stated interest rate of 7%.

Understanding APR in Depth

The APR is your most important tool for comparing loan offers. While two loans might advertise the same interest rate, the one with higher fees has a higher true cost—and APR reveals that difference.

Why APR Matters

Consider two $300,000 mortgage offers: Loan A at 6.5% with $3,000 in fees, and Loan B at 6.625% with $0 fees. The interest rate favors A, but which is truly cheaper? APR calculation reveals the answer based on how long you'll keep the loan.

The Points Decision

Mortgage points let you prepay interest to get a lower rate. One point (1% of loan amount) typically reduces the rate by 0.25%. On a $400,000 loan, paying $4,000 to drop from 6.5% to 6.25% saves about $65/month. Break-even is about 5 years—worth it only if you'll stay that long.

Short-Term vs. Long-Term Impact

Fixed fees affect APR more on shorter loans. A $5,000 fee on a 30-year loan adds roughly 0.14% to APR. The same fee on a 5-year loan adds about 0.4% to APR. Consider your expected loan duration when evaluating offers.

APR Limitations

APR assumes you keep the loan to term. If you refinance or sell early, actual cost differs from APR. Also, APR doesn't capture everything—adjustable rate risks, prepayment penalties, or servicing quality aren't reflected in the number.

APR Calculator FAQs

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Marcus Chen

Financial Analysis Specialist

Marcus has over 12 years of experience in quantitative finance and personal financial planning. He specializes in loan analysis, investment modeling, and consumer debt strategies. His methodologies incorporate industry-standard financial mathematics used by major lending institutions.

Content reviewed: January 2026Next review scheduled: 2027

Editorial Standards: All calculations use industry-standard financial formulas. Content is reviewed for mathematical accuracy and updated to reflect current market conditions. This tool provides estimates for informational purposes and does not constitute financial advice.