Calculate the Annual Percentage Rate (APR) for any loan including fees, points, and closing costs to reveal the true cost of borrowing.
The Annual Percentage Rate (APR) represents the true yearly cost of borrowing money, incorporating not just the interest rate but also fees, points, and other charges. While a lender may quote a low nominal interest rate, the APR reveals the real cost after factoring in origination fees, closing costs, and discount points.
Federal law (Truth in Lending Act) requires lenders to disclose the APR so borrowers can compare loan offers on equal footing. Two loans with the same interest rate can have vastly different APRs if one charges higher fees. Understanding APR is essential for making informed borrowing decisions.
This calculator computes the APR from your loan terms, fees, and discount points. It shows the difference between the stated interest rate and the true APR, helping you evaluate whether paying upfront fees to lower your rate actually saves money. Use the term comparison table to see how different loan lengths affect your total cost.
Lenders compete on interest rate, but the real comparison should be APR. A loan at 6.5% with $8,000 in fees may be more expensive than one at 6.75% with $2,000 in fees. This calculator strips away the marketing and shows you the true cost, enabling apples-to-apples comparisons between loan offers.
APR is calculated by finding the interest rate that equates the payment on (Loan Amount − Total Fees) to the actual monthly payment. Iterative bisection method: find r where (P − F) × [r(1+r)^n] / [(1+r)^n − 1] = actual payment. APR = r × 12 × 100.
Result: APR: 6.68% vs 6.50% nominal — $6,000 in fees adds 0.18% to true cost
A $300,000 loan at 6.5% for 30 years with $6,000 in fees yields a monthly payment of $1,896. But the actual amount received is $294,000. The APR of 6.68% reflects this — you pay 6.5% interest on $300,000 but only received $294,000, making the effective rate higher.
The Truth in Lending Act (TILA) requires lenders to disclose the APR on every loan advertisement and disclosure. This federal regulation ensures borrowers can compare the true cost of different loan offers. Without APR, a lender could advertise a low rate while burying thousands in fees.
APR assumes you keep the loan for the full term. If you refinance or sell after 5 years, a low-fee loan with a slightly higher rate may cost less than a low-rate loan with high fees. Always consider your expected holding period when comparing APR numbers.
For adjustable-rate mortgages (ARMs), the initial APR reflects the introductory rate and fees but does not predict future rate changes. The margin and index determine future rates, so the initial APR may understate the long-term cost.
The interest rate is the cost of borrowing the principal. APR includes the interest rate plus additional costs like origination fees, closing costs, and discount points, expressed as a yearly rate. APR is always equal to or higher than the interest rate.
Because APR factors in upfront costs. You pay fees at closing but the payment is calculated on the full loan amount. Since you effectively received less money but pay the same amount, the true cost (APR) is higher.
Generally yes, but context matters. A lower APR with high upfront fees only saves money if you keep the loan long enough. For short holding periods, a slightly higher APR with low fees may cost less overall.
APR typically includes origination fees, discount points, mortgage broker fees, and certain closing costs. It usually excludes appraisal fees, title insurance, attorney fees, and prepaid items like taxes and insurance escrow.
Each discount point costs 1% of the loan amount and typically lowers the rate by 0.25%. Points increase the APR initially but lower it over time. The break-even point is usually 4–6 years — if you keep the loan longer, points save money.
Yes. Credit card APR represents the annualized interest rate charged on carried balances. Unlike mortgage APR, credit card APR typically does not include fees like annual fees or late charges — it is simply the annualized periodic rate.