APR Calculator
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Results
A $20,000.00 loan at 7% for 60 months with $500.00 in fees has an APR of 8.068%
| Fees | APR | Monthly payment | Finance charge |
|---|---|---|---|
| $0.00 (0%) | 7% | $396.02 | $3,761.44 |
| $100.00 (0.5%) | 7.211% | $396.02 | $3,861.44 |
| $200.00 (1%) | 7.423% | $396.02 | $3,961.44 |
| $400.00 (2%) | 7.851% | $396.02 | $4,161.44 |
| $600.00 (3%) | 8.286% | $396.02 | $4,361.44 |
| $800.00 (4%) | 8.727% | $396.02 | $4,561.44 |
| $1,000.00 (5%) | 9.175% | $396.02 | $4,761.44 |
APR here uses the actuarial method for equal monthly payments. Which fees count as finance charges is set by law (in the US, the Truth in Lending Act and Regulation Z), so your lender’s disclosure is the official figure.
How to use the APR calculator
- Enter the loan amount, the interest rate the lender quotes (the note rate) and the term.
- Add up the fees you pay to get the loan, such as an origination fee, discount points or a broker fee, and enter the total.
- Choose whether you pay the fees up front (or the lender takes them out of the loan money) or add them to the loan balance.
- Read the APR, the monthly payment, the amount financed and the finance charge. The table shows the APR at other fee levels.
What APR means
The interest rate tells you what the lender charges on the balance. The APR folds the fees into that rate, so it answers a different question: if the fees were charged as interest instead, what yearly rate would cost the same? Because it puts fees and interest on one scale, APR is the better number for comparing offers. In the US, the Truth in Lending Act requires lenders to disclose it.
Amount financed = PMT × [1 − (1 + a)−n] ÷ a
APR = a × 12
The payment is set by the interest rate on the loan balance. The amount financed is the money you actually get: the loan minus fees paid up front, or the original amount when the fees are added to the balance. The APR is the monthly rate a at which your n payments are worth exactly the amount financed. It is solved numerically, the actuarial method used for loans with equal monthly payments.
Worked example
A $20,000 personal loan at 7% for 5 years with a $500 origination fee:
- The payment on $20,000 at 7% for 60 months is $396.02.
- With the fee paid up front, you have only $19,500.00 to use, but you still repay $23,761.44.
- The rate at which 60 payments of $396.02 are worth $19,500.00 is 8.07% APR.
- The finance charge is $4,261.44: $3,761.44 of interest plus the $500 fee.
- If the fee is added to the loan instead, the payment rises to $405.92, and the APR is 8.04%, because you now pay interest on the fee as well as the fee itself.
Shorter loans make fees look more expensive
The same $500 fee on $20,000 at 7%, spread over different terms:
| Term | APR | Added by the fee |
|---|---|---|
| 1 year | 11.78% | 4.78 points |
| 2 years | 9.51% | 2.51 points |
| 3 years | 8.72% | 1.72 points |
| 5 years | 8.07% | 1.07 points |
| 7 years | 7.79% | 0.79 points |
A fee is a fixed cost, so the fewer years it is spread over, the more it adds to the yearly rate. The reverse is also true for mortgages: APR assumes you keep the loan to the end. A $300,000, 30-year mortgage at 6.5% with $6,000 of fees has an APR of 6.7%, but if you sell or refinance after a few years, the fees cost you far more per year than that.
Comparing offers with APR
- Lower rate, higher fees. Paying points can lower the rate. 6.25% with $9,000 of fees has an APR of 6.54%, against 6.7% for 6.5% with $6,000, so the APR shows which costs less if you keep the loan for the full term.
- Compare like with like. Use the same amount and term for each offer, or the APRs aren't comparable.
- APR is not APY. APR is a yearly rate without compounding. The effective rate a borrower pays is a little higher, as the compound interest calculator shows.
- Not every cost is a finance charge. Under US rules some closing costs, such as title insurance or appraisal fees on mortgages, are usually excluded, so the official APR may leave out money you still pay. Check the lender's Loan Estimate or Truth in Lending disclosure.
To find the interest rate from a payment instead, use the interest rate calculator. For any other payment, rate or term question, try the finance calculator.
Frequently asked questions
What is the difference between APR and the interest rate?
The interest rate is what the lender charges on the balance. The APR also counts fees and other finance charges, expressed as a yearly rate. A $20,000 loan at 7% for 5 years with a $500 fee paid up front has an APR of 8.07%.
How is APR calculated?
First the monthly payment is worked out from the interest rate. Then the APR is the rate at which those payments are worth exactly the money you receive after fees. For the $20,000 loan, 60 payments of $396.02 are worth $19,500 at 8.07% a year.
Why does the same fee raise the APR more on a short loan?
A fee is a fixed cost, so spreading it over fewer years adds more to each year. A $500 fee on $20,000 at 7% gives an APR of 11.78% over one year but 8.07% over five years.
Is it better to pay fees up front or add them to the loan?
Adding fees to the loan means you pay interest on them, so the total finance charge is higher: $4,355.47 against $4,261.44 in the $20,000 example. The APR comes out slightly lower (8.04%) because it is measured on a larger amount financed.
Does a lower APR always mean a cheaper loan?
Only if you keep the loan for the full term and compare the same amount and term. APR spreads fees over the whole term, so if you repay early, a loan with high fees and a low rate can cost more than its APR suggests.