APR Calculator
Calculate the Annual Percentage Rate (APR) for loans including all fees and costs.
Include any other upfront costs such as appraisal fees, credit report fees, etc.
APR Calculation Results
Annual Percentage Rate (APR):
Monthly Payment: $
Total Payment Over Loan Term: $
Total Interest Paid: $
Total Costs & Fees: $
Understanding APR (Annual Percentage Rate)
The Annual Percentage Rate (APR) is a more comprehensive measure of the cost of borrowing money than the simple interest rate. While the interest rate shows what percentage of the principal amount you'll pay each year, the APR includes both the interest rate and any additional fees or costs associated with the loan, giving you a more accurate picture of the total cost.
Why APR Matters
APR provides a standardized way to compare different loan offers. Two loans might have the same interest rate, but if one has higher fees, its APR will be higher. This makes it easier to determine which loan is truly less expensive over time. In the United States, lenders are legally required to disclose the APR under the Truth in Lending Act, helping consumers make more informed decisions.
How APR Is Calculated
The APR calculation takes into account:
- The loan principal: The amount you're borrowing
- The interest rate: The percentage charged on the principal
- Loan fees: Origination fees, closing costs, etc.
- Loan term: The time period over which you'll repay the loan
The formula essentially finds the rate that would make the present value of all the loan payments equal to the amount received by the borrower after all costs are deducted. This is a complex calculation that typically requires software or calculators like ours.
APR vs. Interest Rate
Understanding the difference between APR and interest rate is crucial when comparing loan options:
Interest Rate
- The basic cost of borrowing money
- Expressed as a percentage of the principal
- Used to calculate your base monthly payment
- Does not include fees or other loan costs
APR
- The total cost of borrowing money
- Includes the interest rate plus fees
- Always higher than or equal to the interest rate
- Provides a more complete picture of loan costs
Types of Fees Included in APR
Common fees that are typically included in APR calculations:
- Loan origination fees
- Discount points
- Mortgage broker fees
- Application fees
- Underwriting fees
- Processing fees
- Document preparation fees
Some costs may not be included in the APR, such as:
- Title insurance
- Property taxes
- Late payment fees
- Homeowners insurance
How to Use Our APR Calculator
- Enter the loan amount you wish to borrow
- Input the loan term in months
- Enter the nominal interest rate (the rate advertised by the lender)
- Add the loan fees (origination fees, processing fees, etc.)
- Include any additional costs if applicable
- Click "Calculate APR" to see your results
Interpreting Your Results
Our calculator will show you:
- Annual Percentage Rate (APR): The true annual cost of your loan including interest and fees
- Monthly Payment: How much you'll pay each month
- Total Payment: The total amount you'll pay over the life of the loan
- Total Interest Paid: How much of your payment goes to interest
- Total Costs & Fees: The sum of all fees and additional costs
By comparing the APR across different loan offers, you can make a more informed decision about which loan provides the best value. Remember that the lowest interest rate doesn't always mean the lowest overall cost.
Frequently Asked Questions
Is a lower APR always better?
Generally, a lower APR means you'll pay less for your loan over time, so it's often better. However, it's important to consider other factors too, such as the loan term. A loan with a lower APR but longer term might cost more overall than a shorter loan with a slightly higher APR. Also consider whether the rate is fixed or variable, potential prepayment penalties, and how long you plan to keep the loan.
Why is my APR higher than my interest rate?
Your APR is higher than your interest rate because it includes not just the interest but also the fees and additional costs associated with the loan. The bigger the gap between your interest rate and APR, the more you're paying in fees. If there's a significant difference, it might be worth negotiating with your lender or shopping around for better offers.
How can I get the lowest APR possible?
To secure the lowest APR, work on improving your credit score before applying for a loan, shop around and compare offers from multiple lenders, negotiate fees where possible, consider making a larger down payment if applicable, and choose a shorter loan term if you can afford the higher monthly payments. Also, be wary of promotional or introductory rates that may increase later.
Are all fees included in the APR calculation?
Not all fees are included in the APR calculation. Generally, APR includes fees that are directly related to the loan, such as origination fees, discount points, and broker fees. However, it typically doesn't include certain third-party fees like title insurance, property taxes, or homeowners insurance. It's important to ask your lender exactly which fees are included in their APR calculation.