APR Calculator
Calculate the Annual Percentage Rate (APR) on any loan including fees.
The Formula
n = loan term in days
Interest = $800
APR = [($500 + $800) / $10,000] / 365 × 365 × 100
APR = 13.0%
What Is APR and Why Does It Matter?
APR — Annual Percentage Rate — is the true yearly cost of borrowing money. Unlike the interest rate, which only reflects the base cost of the loan, APR folds in fees like origination charges, broker fees, and closing costs. This makes it a far more honest number for comparing loan offers. Federal law under the Truth in Lending Act requires lenders to disclose APR, specifically so consumers can make fair comparisons between offers with different rate and fee combinations.
APR vs. Interest Rate: A Real Example
Two mortgage offers: Lender A offers 6.5% with no fees. Lender B offers 6.25% but charges $4,000 in origination fees on a $200,000 loan. The lower rate sounds better — but once you factor in those fees, Lender B's APR is higher, especially if you sell or refinance within a few years. The APR calculator strips away the marketing and shows you what each loan actually costs.
When APR Is Most Useful
APR is most valuable when comparing fixed-rate loans of similar terms. It is less reliable for variable-rate loans (since the rate will change), very short-term loans (where fees dominate the picture), or credit cards (which use APR differently — as a daily rate applied to revolving balances). For mortgages and personal loans with closing costs, APR is the single best metric to compare across lenders.
Frequently Asked Questions
Why is APR always higher than the interest rate?
Because APR includes fees on top of interest. A loan with a 6% rate and $2,000 in origination fees on a $100,000 10-year loan has an APR closer to 6.4%. The more fees charged relative to the loan size and term, the larger the gap between rate and APR.
What is a good APR for different loan types?
It depends on loan type and current market conditions. For 30-year mortgages, under 7.5% APR has been competitive recently. For personal loans with good credit, under 12% is solid. For auto loans, under 7% for new cars is good. Credit cards typically run 18–30% APR. Always compare to current averages for your specific loan type.
Does APR account for compounding?
Standard APR does not account for compounding — it is a simple annualized rate. APY (Annual Percentage Yield) includes compounding and is used for savings accounts. For loans, APR is the standard. Credit card interest, however, compounds daily on unpaid balances, meaning the effective annual cost is slightly higher than the stated APR.
How do mortgage points affect APR?
Points are upfront fees paid to lower the interest rate. One point equals 1% of the loan amount. Paying points increases upfront costs and therefore raises APR. Whether points are worth it depends entirely on how long you keep the loan — the longer you stay, the more the lower rate pays off.
Should I always choose the loan with the lowest APR?
Usually yes, but not always. If you plan to sell or refinance within a few years, a loan with lower fees and a slightly higher rate may cost less total than a low-rate, high-fee loan. APR assumes you hold the loan to maturity. For shorter holding periods, compare total costs over your actual expected timeframe rather than relying on APR alone.