APR Calculator
Calculate the true cost of borrowing with APR. Compare APR vs. interest rate. Free and instant.
APR & Loan Costs
Frequently Asked Questions
What is APR (Annual Percentage Rate)?
APR is the true cost of borrowing, expressed as a yearly percentage. It includes the interest rate plus any fees or costs associated with the loan. APR gives you a more accurate picture of the total cost than interest rate alone.
What's the difference between APR and interest rate?
Interest rate is the cost of borrowing the principal amount. APR includes the interest rate plus additional fees (origination fees, closing costs, etc.). APR is typically higher than the interest rate and gives you the true cost of the loan.
Why is APR important?
APR allows you to compare loans on an equal basis. Two loans with the same interest rate can have different APRs if one has higher fees. Always compare APRs when shopping for loans to see the true cost.
What fees are included in APR?
APR typically includes: origination fees, closing costs, discount points, prepaid interest, and other finance charges. It does not include late fees, penalties, or optional services like credit insurance.
Is a lower APR always better?
Generally yes, but consider the full picture. A loan with a slightly higher APR but lower fees might be better if you're paying off quickly. Also consider loan terms, prepayment penalties, and other factors beyond just APR.
How do I calculate APR?
APR calculation is complex and involves the interest rate, fees, loan amount, and term. This calculator provides an approximation. For exact APR, lenders are required to disclose it in loan documents. The formula accounts for how fees increase the effective cost of borrowing.
Introduction
Understanding APR (Annual Percentage Rate) is crucial when borrowing money. While the interest rate tells you the cost of borrowing, APR gives you the true cost by including fees and other charges. This makes APR the most important number to compare when shopping for loans.
This free APR calculator helps you understand the true cost of borrowing by calculating APR from interest rate and fees. It shows you how fees affect the effective cost of your loan, helping you make informed borrowing decisions.
Whether you're comparing personal loans, credit cards, mortgages, or auto loans, always compare APRs rather than just interest rates to see which loan truly costs less.
How to Use the APR Calculator
Follow these steps to calculate APR and understand loan costs:
- 1
Enter Loan Amount
Input the total amount you're borrowing. This is the principal that you'll repay over the loan term.
- 2
Enter Interest Rate
Enter the annual interest rate (not APR) as a percentage. This is the base rate before fees are added.
- 3
Enter Loan Term
Specify the loan term in years. Common terms are 1-5 years for personal loans, 3-7 years for auto loans, 15-30 years for mortgages.
- 4
Enter Fees
Input any upfront fees or costs: origination fees, closing costs, processing fees, etc. These are added to calculate the true APR.
- 5
Review APR and Costs
See the calculated APR (true cost of borrowing), monthly payment, total amount paid, and total interest. Compare this APR when shopping for loans.
Understanding APR vs. Interest Rate
Interest Rate: The cost of borrowing the principal amount, expressed as a percentage. This is the base rate before any fees are added.
APR (Annual Percentage Rate): The true cost of borrowing, including interest rate plus fees and other costs. APR is always equal to or higher than the interest rate.
Example: A $20,000 loan at 6.5% interest with $500 in fees has an APR of approximately 7.0%. The APR is higher because fees increase the effective cost of borrowing.
Why It Matters: Two loans with the same 6.5% interest rate can have different APRs if one has higher fees. Always compare APRs to see the true cost difference.
Tips & Best Practices for Comparing Loans
1. Always Compare APRs
When shopping for loans, compare APRs rather than just interest rates. APR includes all costs, giving you an apples-to-apples comparison.
2. Understand What's Included
APR includes most upfront fees but not all costs. Late fees, prepayment penalties, and optional services aren't included. Read the fine print.
3. Consider Your Timeline
If you're paying off quickly, a loan with higher fees but lower rate might have a better APR. If you're keeping the loan long-term, focus on the lowest APR overall.
4. Negotiate Fees
Many loan fees are negotiable. Ask lenders to waive or reduce origination fees, processing fees, and other charges to lower your APR.
5. Watch for Prepayment Penalties
Some loans charge penalties for early payoff. These aren't included in APR but can significantly increase costs if you plan to pay off early.
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