About this calculator
Two loans with the same interest rate can cost very different amounts, because one of them carries origination fees, closing costs or prepaid charges. The APR (annual percentage rate) exists to solve exactly that problem: it restates the loan as if those fees were part of the interest, giving you a single number that reflects the true yearly cost of borrowing.
Fees hurt smaller and shorter loans the most. A $500 fee on a $20,000 five-year loan lifts the APR by about a point; the same fee on a $5,000 two-year loan lifts it by several points — which is why short-term offers can look cheap on rate and be expensive in reality.
How to use it
- Enter the loan amount, the quoted interest rate and the term.
- Add all lender fees: origination, application, closing and any points you are paying.
- Compare the resulting APR against other offers — the lower APR is the cheaper loan, all else equal.
The formula
In words: you receive the loan amount minus fees, but your payments are calculated on the full amount. The APR is the interest rate that would make those payments exactly repay the smaller amount you actually received. There is no direct algebraic solution, so the calculator finds it by bisection — narrowing in on the rate until the equation balances.
Worked example
Borrow $20,000 at 6% for 5 years with $500 in fees. Your payment is $386.66 — calculated on the full $20,000 — but only $19,500 reaches you. The rate that reconciles those facts is an APR of 7.058%: the fees effectively add more than a full percentage point to the cost of the loan.
Frequently asked questions
Why is APR higher than the interest rate?
Because APR spreads the loan's fees across its term and expresses them as extra interest. If a loan had zero fees, its APR would equal its interest rate. The wider the gap between rate and APR, the more of the loan's cost is hiding in fees.
Should I always choose the loan with the lowest APR?
For loans you will keep for their full term, yes — APR is the honest comparison. If you expect to repay or refinance early, upfront fees matter more than APR suggests (APR assumes you keep the loan to the end), so a lower-fee, slightly higher-rate loan can win. Also check prepayment penalties.
Is APR the same for mortgages and personal loans?
The concept is the same, but the fee sets differ. Mortgage APR includes points, origination and most closing costs; things like appraisal are sometimes excluded, which is why mortgage APRs and this calculator can differ slightly from a lender's official disclosure. For personal and auto loans the main fee is usually origination.
What about credit card APR?
Credit card APR is simpler — it is just the interest rate applied to balances, with no fee conversion, because cards have no fixed term or payment schedule. It works fine for comparing cards, but it is a different calculation from the loan APR computed here.