APR Calculator
Turn an interest rate plus upfront fees into one comparable number, the annual percentage rate, the way US lenders calculate it.
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Two loans with the same interest rate can cost very different amounts if one charges thousands in fees. The annual percentage rate (APR) solves this by folding the upfront finance charges into a single yearly rate. This calculator finds the APR the way US lenders do under the Truth in Lending Act, so you can check a Loan Estimate or compare offers fairly.
How to use the APR calculator
- Enter the loan amount: the full amount on the note, before fees.
- Enter the interest rate, also called the note rate.
- Choose the loan term.
- Enter the total of upfront fees and points that count as finance charges.
You will see the APR, the monthly payment, the amount financed (the loan minus fees), the total finance charge and how far the APR is above the interest rate.
How APR is calculated
The monthly payment is set by the note rate on the full loan:
payment = loan × r ÷ (1 − (1 + r)^−n), r = interest rate ÷ 12But you only receive the loan minus the prepaid finance charges, the amount financed. The APR is the yearly rate at which those same payments would repay exactly the amount financed:
amount financed = payment × (1 − (1 + a)^−n) ÷ a, APR = a × 12There is no direct formula for a, so the calculator solves for it numerically, as lenders’ software does.
Worked example
A $300,000 mortgage at 6.5% for 30 years, with $6,000 in points and origination fees:
- Monthly payment at 6.5% on $300,000: $1,896.20.
- Amount financed: 300,000 − 6,000 = $294,000.
- The rate that repays $294,000 with 360 payments of $1,896.20 is 6.695%. That is the APR, 0.195 points above the note rate.
- Total finance charge (all interest plus fees) = 1,896.20 × 360 − 294,000 = $388,633.47.
On a smaller loan, fees matter more. A $20,000 personal loan at 8% for 5 years with a $600 origination fee has an APR of 9.298%.
How to use APR when comparing loans
- Compare APRs for the same term. A 15-year APR and a 30-year APR aren’t directly comparable.
- Use APR to decide on points. Paying points lowers the rate but raises the upfront cost. If you’ll keep the loan for its full term, the lower APR usually wins. If you’ll sell or refinance in a few years, it may not.
- Watch for very short loans. Fees have a huge effect on the APR of short-term and payday loans, which is exactly why APR exists.
For the rate on a loan you only know the payment of, use the interest rate calculator. For the full monthly cost of a home, including tax and insurance, use the mortgage calculator.
Common mistakes
- Including fees that aren’t finance charges. Title insurance, appraisals and recording fees normally sit outside the APR. Adding them overstates it.
- Comparing APR with someone else’s interest rate. Always compare like with like.
- Assuming APR includes compounding. It doesn’t. It is a nominal yearly rate.
- Forgetting adjustable-rate loans. The APR on an ARM assumes the rate resets according to current index values, so the real cost may be higher or lower.
Frequently asked questions
Why is my APR higher than my interest rate?
The interest rate sets your payment, but fees reduce the money you actually receive. APR measures the cost against that smaller amount, so any finance charge paid upfront pushes the APR above the rate. With no fees, the two are equal.
Which fees count toward APR?
Finance charges such as origination fees, discount points, mortgage broker fees, prepaid interest and mortgage insurance premiums usually count. Costs you would pay in a cash purchase, such as appraisal, title insurance and recording fees, usually don't. Your Loan Estimate lists what the lender included.
Why does the same fee raise the APR more on a short loan?
The fee is spread over fewer payments. On a $300,000 loan with $6,000 of fees at 6.5%, the APR is 6.695% over 30 years but 7.122% over 7 years.
Is APR the same as APY?
No. APR is a yearly rate that includes certain fees but not compounding. APY (annual percentage yield) includes compounding and is used for savings. A loan's effective annual rate would be higher than its APR.