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APR Calculator

$
Nominal/Stated Rate
$
Origination, Points, Closing Costs

Enter loan details to see the true cost of borrowing.

Key Insight

The APR is ALWAYS higher than the stated interest rate if there are any fees. A loan at 6% interest with $3,000 in fees could have an APR of 6.15% or higher, depending on the loan amount and term.

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APR Resources:

Note: This is a simplified APR estimate. Actual lender APRs may vary based on compounding, specific fee structures, and regulatory definitions.

Understanding APR: The True Cost of Borrowing

When you shop for a loan, you'll see two critical numbers: the Interest Rate and the APR (Annual Percentage Rate). While they seem similar, they are fundamentally different, and understanding APR is key to making smart borrowing decisions.

Think of the Interest Rate as the "sticker price" of a car and the APR as the "out-the-door price" that includes all fees and add-ons. The APR rolls up origination fees, discount points, closing costs, and other charges into a single, standardized percentage, allowing you to compare loans on a truly level playing field.

Why Lenders Must Disclose APR

Under the Truth in Lending Act (TILA) in the US (and similar laws in other countries), lenders are legally required to disclose the APR. This prevents predatory lending practices where a lender might advertise a low interest rate but bury huge fees in the fine print.

How APR is Calculated (Simplified)

The calculation is complex, but the core idea is simple:

APR = The interest rate that, if applied to a loan WITHOUT fees, would result in the same total cost as your ACTUAL loan WITH fees.

Essentially, it "spreads" the upfront fees across the life of the loan and converts them into an equivalent annual interest percentage. The formula uses iterative mathematical methods (like Newton-Raphson) to find this rate.

Official Financial Resources

For regulatory definitions and detailed examples:

APR vs. Interest Rate: A Critical Difference

Interest Rate (Nominal)
The "Sticker Price"
  • Only the cost of borrowing the principal.
  • Does NOT include fees.
  • Used to calculate your monthly payment.
APR (Annual Percentage Rate)
The "Out-the-Door Price"
  • Includes interest rate + ALL fees.
  • Standardized for comparison shopping.
  • Always >= the Interest Rate.

Real-Life Scenarios: When APR Matters Most

Loan A: 5.75% Interest, $0 in Points = 5.75% APR

Loan B: 5.50% Interest, but $4,000 in Points = 5.68% APR

Verdict: Loan B is cheaper in the long run despite the upfront cost, IF you keep the loan for its full term.

If you plan to sell your home or refinance in 3-5 years, paying high upfront points for a lower rate is usually a BAD deal. You won't hold the loan long enough to "recoup" the fee cost through monthly savings.

Tip: In this case, prioritize a loan with a low APR that's CLOSE to its interest rate (meaning low fees).

How to Get a Lower APR

Improve Credit

Lenders reserve the best rates for borrowers with credit scores above 760. Even moving from 680 to 720 can drop your rate by 0.25-0.50%.

Negotiate Fees

Origination fees, processing fees, and even some closing costs are negotiable. Ask the lender to reduce or waive them. They often will to win your business.

Shop Around

Get quotes from at least 3-5 lenders. APRs can vary significantly. Use our calculator to compare them side-by-side.

Frequently Asked Questions

No. Your monthly payment is calculated based on the Interest Rate and the Loan Amount. APR is a comparison tool, not a calculation input. However, fees (which are part of APR) do cost you money, either upfront or rolled into the loan.

Credit cards are unsecured debt (no collateral), so lenders charge 15-25%+ APR to offset the risk. Mortgages are secured by your home, making them much safer for lenders, hence rates of 5-8%.

Common fees included: Origination Fees, Discount Points, Broker Fees, Prepaid Interest. Fees NOT typically included: Appraisal, Title Insurance, Taxes, Home Inspection (these vary by lender and regulation).

A Discount Point is an upfront fee equal to 1% of the loan amount that you pay to "buy down" your interest rate (typically by 0.125% - 0.25% per point). It's essentially prepaying interest. It increases your APR but lowers your long-term cost if you keep the loan.

Legal Disclaimer: APR calculations are estimates. Consult with a licensed lender for official quotes and TIL disclosure documents.