APR Calculator
Calculate the true Annual Percentage Rate including fees and closing costs.
The APR Calculator reveals the true cost of a loan by converting the stated interest rate and all fees into a single annual percentage rate. Unlike the stated rate alone, APR accounts for closing costs, discount points, origination fees, and other expenses, making it the best way to compare loan offers from different lenders on an equal footing.
Examples
Mortgage with Points
No-Fee Loan
Frequently Asked Questions
What is the difference between interest rate and APR?
Why is APR always higher than the interest rate?
Should I always choose the loan with the lowest APR?
Quick Tips
- •APR is the best way to compare loan offers from different lenders on equal footing.
- •A lower interest rate with high fees can have a higher APR than a higher rate with no fees—always compare APRs, not just rates.
- •Discount points make sense if you plan to keep the loan long enough to recoup the upfront cost through lower monthly payments.
- •APR does not include costs like homeowners insurance, PMI, or property tax—factor these in for mortgages when comparing loans.
- •If you plan to refinance or sell soon, a no-points, no-fee loan with higher APR may be cheaper than a lower-APR loan with upfront costs.
The APR Calculator reveals the true cost of a loan by converting the stated interest rate and all fees into a single annual percentage rate. Unlike the stated rate alone, APR accounts for closing costs, discount points, origination fees, and other expenses, making it the best way to compare loan offers from different lenders on an equal footing.
How to Use This Calculator
Enter the loan amount, stated interest rate, and loan term. Add any closing costs, discount points, and other fees. The calculator will compute the APR, which reflects the true annual cost of borrowing including all fees.
Understanding the Formula
APR is derived by finding the interest rate that equates the net loan proceeds (loan amount minus fees) with the present value of all monthly payments. It is solved iteratively using numerical methods.
Examples
Mortgage with Points
A $250,000 loan at 6.5% with 1 point ($2,500) and $3,000 closing costs. The monthly payment is based on 6.5%, but the APR is higher (around 6.7%) because you effectively received only $244,500 while repaying based on $250,000.
No-Fee Loan
A $100,000 loan at 7% with zero fees. The APR equals the stated rate (7%) since there are no additional costs folded in.
Frequently Asked Questions
What is the difference between interest rate and APR?
The interest rate is the cost of borrowing the principal. APR includes the interest rate plus other fees and costs, giving a more complete picture of the total annual cost of the loan.
Why is APR always higher than the interest rate?
APR includes fees (closing costs, points, origination fees) that effectively increase the cost of borrowing. If a loan has zero fees, the APR equals the interest rate.
Should I always choose the loan with the lowest APR?
Not necessarily. If you plan to sell or refinance soon, a lower-rate loan with higher upfront fees (higher APR) may cost more than a higher-rate loan with no fees. Consider how long you will keep the loan.
Assumptions & Limitations
- All fees are paid upfront at loan origination; the calculator assumes you have funds available to cover closing costs.
- The interest rate remains fixed for the entire loan term; variable-rate loans will have different effective costs.
- Discount points are expressed as a percentage of the loan amount (1 point = 1% of loan).
- Does not include recurring costs like homeowners insurance, PMI (mortgage insurance), property taxes, or hazard insurance.
- APR calculation assumes the loan is held until maturity; early payoff or refinancing will affect your true cost of borrowing.