APR Calculator
Calculate the true cost of borrowing with Annual Percentage Rate.
Loan Details
Fees: 5.00% of loan amount
APR Result
Annual Percentage Rate
7.13%
About This Calculator
The APR (Annual Percentage Rate) Calculator helps you determine the true cost of borrowing by including both interest rates and fees. Unlike the nominal interest rate, APR provides a more accurate comparison of loan costs from different lenders.
APR is especially important when comparing loans because it accounts for origination fees, closing costs, and other charges that increase the total cost of borrowing. A higher APR means a more expensive loan, even if the interest rate appears low.
Formula & Calculation Method
APR Calculation: APR is calculated by solving for the rate that makes the present value of all payments equal to the effective loan amount (principal minus fees).
Effective Principal = Loan Amount - Fees
APR is solved iteratively from:
Effective Principal = Monthly Payment × [(1 - (1+r)^-n) / r]
Where: r = Monthly APR rate, n = Number of payments
The APR calculation uses an iterative method (Newton-Raphson) to find the rate that equates the effective loan amount with the present value of all payments. This accounts for fees upfront, giving you the true annual cost of borrowing.
How to Use This Calculator
- Enter Loan Amount: Input the total amount you're borrowing.
- Enter Interest Rate: Input the nominal annual interest rate percentage.
- Enter Loan Term: Input the loan duration in years.
- Enter Fees: Input all upfront fees (origination, closing, processing, etc.).
- View APR: See the calculated APR, which includes both interest and fees.
- Compare: Use APR to compare different loan offers accurately.
Frequently Asked Questions
What is the difference between APR and interest rate?
The interest rate is the cost of borrowing the principal amount. APR includes the interest rate plus all fees and charges, giving you the true annual cost of the loan.
Why is APR higher than the interest rate?
APR is higher because it includes fees in addition to interest. When fees are added upfront, they effectively increase the cost of borrowing, resulting in a higher APR.
What fees are included in APR?
APR typically includes origination fees, closing costs, processing fees, and other upfront charges. It does not include optional fees like late payment penalties.
Should I choose a loan with lower APR or lower interest rate?
Always compare APR when choosing loans. A lower APR means lower total cost, even if the interest rate appears higher. APR gives you the true cost comparison.
Expert Reviewed
This calculator was reviewed by NumCalculators Editorial Team, Multi-disciplinary Expert Team