Calculate the true Annual Percentage Rate (APR) of your loan including all fees and costs
Include origination fees, points, closing costs, etc.
Annual Percentage Rate (APR) is the true cost of borrowing money, expressed as a yearly rate. Unlike the nominal interest rate, APR includes all fees and costs associated with the loan, giving you a complete picture of what you'll actually pay.
APR is always equal to or higher than the nominal interest rate because it accounts for origination fees, points, closing costs, and other charges. This makes APR the most accurate way to compare loan offers from different lenders.
| Aspect | Interest Rate | APR |
|---|---|---|
| What it includes | Only interest charges | Interest + all fees and costs |
| Accuracy | Partial cost picture | Complete cost picture |
| Use case | Calculate monthly payment | Compare loan offers |
| Typical value | Lower number | Higher number |
APR calculation involves finding the interest rate that equates the present value of all loan payments to the net loan amount (loan amount minus fees). The formula accounts for:
The APR is the rate that makes these values equal, representing the true annual cost of the loan.
Understanding APR is crucial when comparing loan offers because:
Mortgage APRs typically range from 3-7% and include closing costs, points, and origination fees. The difference between rate and APR is usually 0.2-0.5%.
Auto loan APRs range from 3-15% depending on credit. Fees are typically lower than mortgages, so APR is closer to the nominal rate.
Personal loan APRs range from 6-36%. Origination fees of 1-8% are common, making APR significantly higher than the stated rate.
Credit card APRs range from 15-25%. Since there are typically no upfront fees, APR equals the interest rate for most cards.
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