APR calculator
Enter the loan and its fees, get the APR.
What is APR?
The annual percentage rate is a broader measure of the cost of borrowing than the interest rate: it reflects the interest rate plus points, broker fees and other charges you pay to get the loan (CFPB).
How is APR calculated with fees?
The payment is based on the full loan, but prepaid finance charges are subtracted from what you effectively receive (the amount financed). APR is the rate at which those payments pay off just the amount financed. $200,000 at 6.5% for 30 years with $4,000 in fees has an APR of about 6.695%.
Which fees count?
Finance charges such as points, loan fees, assumption fees and finder’s fees (Regulation Z). Some costs, like many third-party real-estate charges, are not finance charges.
How accurate must a lender’s APR be?
For a regular loan, within 1/8 of a percentage point of the true figure (12 CFR 1026.22).
Why compare APRs?
Two loans with the same interest rate can cost different amounts; APR folds the fees in, so it helps compare offers of the same term.
Can the APR be lower than the interest rate?
Not when fees are added to a loan with a single rate. Prepaid charges only reduce the amount you actually receive, which raises the effective rate. With no prepaid finance charges, the APR and the note rate are equal.
Is a lower APR always the better loan?
Only when the loans have the same term and you will keep them for the whole term. If you plan to sell or refinance early, the up-front fees are spread over fewer payments, so a loan with a higher rate but fewer fees can cost less in practice.
How is APR different from APY?
APR is a cost-of-credit measure for loans, based on payments on the amount financed. APY is a yield measure for deposits that includes compounding. They answer different questions and should not be compared with each other.
How the calculation works
The calculator first finds the monthly payment from the full loan amount, the interest rate and the term. It then subtracts the prepaid finance charges from the loan amount to get the amount financed, which is what you actually receive. The APR is the annual rate at which those same payments exactly pay off the amount financed. Because the payments stay fixed while the amount financed gets smaller, the APR is higher than the note rate. The method follows the actuarial approach in Regulation Z and assumes a fixed rate and equal monthly payments held to the end of the term.
Worked example
Take a $300,000 loan at 6.25% for 30 years with $6,000 in prepaid finance charges. The monthly payment is $1,847.15, and the amount financed is $300,000 − $6,000 = $294,000. The APR is the rate at which 360 payments of $1,847.15 have a present value of $294,000. That rate is 6.442%, which is 0.192 points above the note rate. The same loan without fees has an APR of 6.250%.
The APR assumes you keep the loan for all 360 months. If you repay it after 7 years, when the remaining balance is $270,101, the same fees are spread over a shorter time and the effective annual cost rises to about 6.62%.
Common mistakes
- Counting every closing cost. Only prepaid finance charges (such as points and certain loan fees) belong in the fees box. Some third-party charges, such as an appraisal on a real-estate loan, are not finance charges under Regulation Z, so including them gives a number that differs from the lender's disclosure.
- Comparing APRs across different terms. A 15-year loan and a 30-year loan with the same fees have different APRs because the fees are spread over a different number of payments. Compare offers with the same term.
- Using APR for adjustable-rate loans. The APR on an adjustable-rate loan depends on assumptions about future rate changes, so it can only be an estimate.
Sources and related calculators
Definitions and tolerance: the Consumer Financial Protection Bureau's explanation of APR, Regulation Z (12 CFR 1026.4 on finance charges and 1026.22 on APR accuracy) and its Appendix J on the actuarial method. Related: mortgage calculator, mortgage points calculator and APY calculator.
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