Calculate the Annual Percentage Rate (APR) — the true cost of a loan including all fees, which is always higher than the nominal interest rate.
Our free APR calculator reveals the true cost of a loan by factoring in not just the interest rate, but also origination fees, application fees, discount points, and other closing costs. This gives you the Annual Percentage Rate (APR), a more complete number for comparing loan offers than the interest rate alone.
APR reflects the total cost of borrowing, spreading all upfront fees over the life of the loan and expressing them as an effective annual rate. It's calculated by finding the rate that equates your net loan proceeds (loan amount minus fees) to the present value of all your scheduled monthly payments.
Because APR includes fees, it's almost always higher than the loan's stated (nominal) interest rate. The gap between the two is larger for loans with high fees relative to the loan amount, and for shorter loan terms, since fees are spread over fewer years.
Federal law (the Truth in Lending Act) requires U.S. lenders to disclose APR, making it one of the best tools for comparing loan offers from different lenders side by side.
The interest rate is the cost of borrowing the principal, expressed as a percentage. APR includes the interest rate plus lender fees and other loan costs, giving a more complete picture of the loan's true annual cost.
APR is higher because it factors in upfront costs like origination fees and points, spreading them over the loan term as an effective rate increase. A loan with no fees would have an APR equal to its interest rate.
APR is generally the better comparison tool since it accounts for total borrowing cost, not just the rate. However, if you plan to pay off or refinance the loan quickly, a low-fee, higher-rate loan might cost less than a low-rate, high-fee loan with a higher APR.
For mortgages, APR typically includes upfront fees like origination charges and discount points, but generally does not include ongoing costs like property taxes, homeowners insurance, or PMI, since those aren't fixed loan costs.