How to use the APR calculator
- Enter the loan amount you are borrowing.
- Enter the interest rate the lender quotes and the loan term in years.
- Enter the upfront fees that count as finance charges: discount points, origination and underwriting fees, and similar lender charges.
- Choose whether the fees are paid at closing (you bring cash or receive less) or added to the loan.
- Read the APR, the monthly payment, the finance charge, and how the effective rate rises if you repay early.
How APR is calculated
APR is the interest rate that makes your payments worth exactly the money you actually get to use. Fees reduce that money, so they push the APR above the interest rate.
The calculator finds j by bisection: it tries a rate, checks whether the payments are worth more or less than the amount financed, and halves the gap about 200 times. This is the actuarial method that US lenders use for Truth in Lending disclosures under Regulation Z, which treats a disclosed APR as accurate if it is within one-eighth of a percentage point of the true figure for regular loans (12 CFR 1026.22).
Worked example
The defaults are a $200,000 loan at 6.5% for 30 years with $4,000 of fees paid at closing:
- Payment on the full $200,000: rate 0.065 ÷ 12 = 0.0054167 over 360 months gives $1,264.14
- Amount financed: $200,000 − $4,000 = $196,000
- APR: the monthly rate at which 360 payments of $1,264.14 are worth $196,000 is 0.55794%, so the APR is 6.695%
- Finance charge: $255,088.98 of interest + $4,000 of fees = $259,088.98
If the $4,000 is added to the loan instead, you owe $204,000, the payment rises to $1,289.42, and the APR is 6.691%. Without fees the APR equals the interest rate, 6.500%. On a 15-year loan, the same fees push the APR to 6.822%, because they are spread over fewer payments.
APR assumes you keep the loan
APR spreads the fees across the whole term. If you sell or refinance early, you paid the full fees for fewer years. The default loan, repaid early:
| Loan repaid after | Effective rate |
|---|---|
| 3 years | 7.256% |
| 5 years | 6.989% |
| 7 years | 6.876% |
| 10 years | 6.793% |
| 30 years (full term) | 6.695% |
This is why paying points to lower your rate only makes sense if you expect to keep the loan for many years. Use the refinance calculator to compare a new loan with your current one.
APR vs. interest rate
The interest rate sets your monthly payment. The APR adds the cost of upfront finance charges and expresses everything as one yearly rate, which makes offers with different fees comparable. A loan at 6.25% with $8,000 of points can have a higher APR than a loan at 6.5% with $2,000 of fees. For a mortgage, Regulation Z leaves some closing costs out of the finance charge, such as appraisal, credit report and title fees, so even the APR doesn't capture every dollar you pay at closing. Compare the Loan Estimate forms side by side as well.
Frequently asked questions
Which fees should I include?
Include charges that are a condition of getting the loan and paid to the lender or broker: points, origination, underwriting, processing and similar fees. Leave out costs you would pay in a cash deal too, like taxes and registration. For a mortgage, the Loan Estimate shows the lender's APR, so you can check this calculator against it.
Why is my APR only slightly higher than my rate?
On a long loan the fees are spread over many years. $4,000 on a $200,000, 30-year loan adds less than 0.2 percentage points. The same fees on a 5-year car loan would add much more.
Is a lower APR always the better deal?
Usually, if you keep the loan to the end. If you might repay early, a loan with lower fees and a slightly higher rate can cost less, as the early-repayment table shows. Check the total cost over the time you actually expect to have the loan.
Is APR the same as APY?
No. APR is a simple yearly rate: 12 times the monthly rate. APY (annual percentage yield) includes compounding and is used mostly for savings. A 6.695% APR compounded monthly is an effective annual rate of about 6.9%.
Related calculators
- Interest Rate Calculator — Find the annual interest rate hidden in a loan from the amount, the term and the monthly payment.
- Mortgage Calculator — Your full monthly housing cost, including property tax, insurance, PMI and HOA fees.
- Personal Loan Calculator — Monthly payment, total cost and true APR of a personal loan, including an origination fee.
- Refinance Calculator — Whether refinancing pays off: new payment, monthly savings, break-even month and lifetime interest.
Results are estimates for educational purposes and are not financial, tax or legal advice. See our disclaimer.