APR Calculator

Calculate the true Annual Percentage Rate of your loan to understand the real cost of borrowing.

How APR is Calculated

APR (Annual Percentage Rate) represents the true yearly cost of your loan, expressed as a percentage. It includes:

  1. Interest charges: The basic cost of borrowing based on the nominal rate.
  2. Origination fees: Charges for processing and setting up the loan.
  3. Other fees: Application fees, documentation fees, etc.

The APR is calculated by finding the interest rate that would produce the same total cost if all fees were included in the loan amount. This standardized rate allows for fair comparison between different loan offers.

Example Calculation

For a $10,000 loan at 8% nominal rate for 36 months with $600 in fees:

Results may vary slightly depending on rounding conventions.

FAQ

What is APR and why does it matter?
APR (Annual Percentage Rate) represents the true yearly cost of borrowing, including interest and all fees. Unlike the nominal interest rate, APR gives you a complete picture of what you'll actually pay, making it easier to compare different loan offers fairly.
Why is APR higher than the interest rate?
APR is higher because it includes all costs of the loan - not just interest, but also origination fees, processing fees, and other charges. A loan with a low interest rate but high fees may have a higher APR than one with a slightly higher rate but no fees.
How can I use APR to compare loans?
When comparing loan offers, always look at the APR rather than just the interest rate. The loan with the lower APR will cost you less overall, assuming the same loan amount and term. This is especially important when comparing loans with different fee structures.

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