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APR Calculator

Calculate the Annual Percentage Rate for a loan.

Finance
APR Calculator
Calculate the Annual Percentage Rate (APR) for a loan.

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Understand the True Cost of Borrowing

The Annual Percentage Rate (APR) gives you the true cost of a loan because it includes not only the interest rate but also any lender fees or other charges. This calculator helps you determine the APR, allowing for a more accurate apples-to-apples comparison between different loan offers.

The APR Formula Explained

There is no simple, direct formula to calculate APR. It is the interest rate that, when used in the loan payment calculation, results in a loan amount equal to the principal minus the fees. It must be solved for iteratively. The calculator finds the monthly rate i that solves: Loan Amount - Fees = Σ [Monthly Payment / (1 + i)ⁿ] The APR is then i * 12.

How to Use the Calculator

  1. Loan Amount: Enter the principal amount of the loan.
  2. Loan Term (Months): Enter the total number of months you will be making payments.
  3. Nominal Interest Rate (%): Enter the stated interest rate of the loan.
  4. Fees: Enter the total dollar amount of all upfront fees (origination fees, etc.).

Real-World Example

You are taking a $10,000 loan for 36 months at a 5% nominal interest rate, but there is a $200 origination fee.

  • Net amount received: $10,000 - $200 = $9,800
  • The monthly payment is calculated based on the $10,000 principal at 5%, which is $299.71.
  • The calculator then finds the interest rate that would make paying $299.71 for 36 months equal to a loan of $9,800.
  • The resulting APR would be approximately 6.29%.

Frequently Asked Questions (FAQ)

  • Why is APR higher than the interest rate? Because it includes the cost of fees. The fees effectively reduce the amount of money you receive while you still have to pay back the full loan amount, increasing the true cost of borrowing.
  • Should I always choose the loan with the lowest APR? Usually, yes. The APR is the best tool for comparing the total cost of different loans. However, you might also consider other factors like customer service or prepayment penalties.
  • Does APR include all possible fees? No. It typically includes lender fees like origination fees and discount points, but it may not include third-party fees like appraisal or title fees, especially in mortgages.