APR Calculator
Determine the true Annual Percentage Rate of borrowing including fees and compounding. Compare loan offers to find the lowest effective cost.
Formula
APR = Rate that makes PV of payments = Amount financed
APR includes interest rate plus fees, expressed as an annual rate for easy comparison across loans.
Worked Examples
Example 1: Mortgage APR
Problem:$300,000 mortgage, 6.5% rate, $6,000 fees, 30 years.
Solution:Monthly payment: $1,896.20\nActual borrowed: $294,000\n\nAPR calculation considers you get\n$294,000 but pay as if $300,000.\n\nAPR ≈ 6.68%
Result:APR: 6.68% (0.18% higher than rate)
Example 2: Compare Loans
Problem:Loan A: 6%, $3,000 fees. Loan B: 6.25%, no fees. Both $200,000/30yr.
Solution:Loan A APR: 6.12%\nLoan B APR: 6.25%\n\nA is better if keeping 30 years.\nBut if selling in 5 years, B might win\n(fees not amortized long enough).
Result:Choose based on hold time
Example 3: Auto Loan APR
Problem:$25,000 auto loan, 5.9% rate, $1,250 fees, 5 years.
Solution:Amount financed = $25,000 - $1,250 = $23,750\nMonthly payment is based on the full $25,000 note.\nAPR solves for the rate that discounts those payments back to $23,750.\n\nResult: APR is higher than the stated rate because fees reduce the cash you actually receive.
Result:APR is about 8.05%, not 5.90%
Frequently Asked Questions
What is APR?
Annual Percentage Rate includes interest rate plus fees, expressed as a yearly rate. It's the true cost of borrowing, making it easier to compare loans with different fee structures.
How is APR different from interest rate?
Interest rate is just the cost of borrowing principal. APR includes origination fees, points, and other costs. A 6% rate with $5,000 fees might have 6.3% APR.
Why is APR higher than interest rate?
APR factors in fees spread over the loan term. Higher fees or shorter terms increase the difference. A 30-year loan's APR is closer to rate than a 15-year loan with same fees.
Does APR include all costs?
APR includes most lender fees but may exclude title insurance, appraisal, and prepaid items. Compare APR AND closing costs for full picture.