Loans · true cost of borrowing

APR calculator

Your quoted interest rate ignores the fees. APR rolls the upfront closing costs into one effective annual rate — the number that lets you compare two loans honestly. Enter the loan, rate, term and fees to see the real APR you pay.

Effective APR —

Nominal rate: —
Monthly payment: —
Total fees: —
APR premium: —

The APR sits above your nominal rate because the fees are spread, as an extra interest charge, across the whole term. Borrow for fewer years and the same fees push APR up harder; keep the loan longer and they thin out.

Nominal rate vs APR — what the fees really cost

Same loan, rate and term — only the fees change. The nominal rate never moves; the APR does.

Fees	Amount financed	APR	vs. nominal

APR vs. the nominal interest rate

Every loan quote leads with an interest rate — 6.5%, say — and that number sets your monthly payment. But it’s only half the story. The rate says nothing about what it costs to get the loan: the origination fee, the discount points, the underwriting and processing charges you pay upfront. The APR exists to put those costs back in. It’s the single annual percentage that captures both the interest and the fees, so a loan’s true price shows up in one comparable figure.

Mechanically, the calculator above works out your monthly payment from the full loan and nominal rate, then asks a different question: what rate would make that exact stream of payments fair against the money you actually received — the loan minus its fees? Solving for that rate and annualising it gives the APR. With no fees the two numbers match exactly; add fees and the APR climbs above the rate.

What’s included in APR

APR is built from the prepaid finance charge — the costs the lender imposes to make the loan. That typically means origination fees, discount points, underwriting, processing and document fees. What it usually leaves out are third-party costs you’d incur no matter who lent you the money: a home appraisal, title insurance, recording or notary fees. The dividing line varies by loan type and jurisdiction, which is exactly why two lenders can publish slightly different APRs on the same headline rate — they’ve drawn the “fee” boundary in different places. The number in this tool reflects whatever you type into the fees box, so make it match the prepaid charges on your loan estimate for a clean comparison.

Why APR matters when comparing offers

Headline rates are designed to look attractive, and a lender can always buy a lower rate by charging more upfront in points. That’s why comparing two loans on interest rate alone is a trap: the cheaper-looking rate can be the more expensive loan once its fees are counted. The comparison table in the tool makes this concrete — hold the loan, rate and term fixed, vary only the fees, and watch the nominal rate stay flat while the APR marches upward. To compare real offers, line them up at the same loan amount and term and rank them by APR, not by the rate on the brochure.

The catch — APR assumes you keep the loan the whole term

APR has one important blind spot: it spreads the upfront fees across the entire term of the loan. That assumption is what makes a low-rate, high-fee loan look good — the fees are diluted over thirty years. But if you sell the house, refinance, or pay the loan off early, those fees haven’t had time to amortise, and you’ve effectively paid them over just a few years instead. In that case a loan with fewer fees and a slightly higher rate can be the cheaper choice, even though its APR looks worse on paper. The shorter you expect to hold the loan, the less you should trust APR and the more you should weigh the upfront cash.

Related tools & guides

Mortgage calculator — the full monthly payment including taxes, insurance and PMI.
Amortization calculator — the year-by-year schedule of principal and interest behind any fixed-rate loan.
Refinance calculator — weigh new closing costs against the monthly savings to find your break-even.

These figures are for planning and education, not financial advice. Your lender’s official loan estimate is the authoritative APR — confirm the exact number, and which fees it includes, with them before you sign.

APR calculator FAQ

What is APR?

APR — annual percentage rate — is the yearly cost of a loan expressed as a single percentage that includes both the interest and the upfront finance charges, like origination fees, discount points and certain closing costs. The point of APR is comparability: because it folds the fees into the rate, you can line up two loans with different fee structures and tell which is genuinely cheaper. It’s calculated by working out the interest rate that makes the present value of your payments equal to the amount you actually receive after fees are deducted.

What is the difference between APR and the interest rate?

The interest rate (or nominal rate) is the cost of borrowing the principal alone — it’s what sets your monthly payment. APR is broader: it takes that same payment stream but measures it against the amount you actually walked away with after fees, so it captures the true cost. If a loan has zero fees, the APR and the interest rate are the same. The moment there are upfront costs, the APR rises above the interest rate, and the gap is the fees re-expressed as an annual rate.

Why is my APR higher than my interest rate?

Because of the fees. When you pay points, an origination fee or other closing costs upfront, you receive less money than the loan’s face value, yet your payments are still based on the full amount. Effectively you’re paying interest on money you never got to use, which raises the real cost. APR captures that by spreading the fees across the life of the loan and adding them to the rate. The bigger the fees relative to the loan — or the shorter the term they’re spread over — the larger the gap.

Does APR include all fees?

Not necessarily. APR includes the prepaid finance charges the lender controls — origination fees, discount points, underwriting and similar — but it generally excludes third-party costs you’d pay regardless of the lender, such as a home appraisal, title insurance or recording fees. Rules vary by loan type and jurisdiction, so two lenders can quote slightly different APRs on the same headline rate depending on which fees they include. Always check the loan estimate to see exactly what’s counted.

How do I compare loans by APR?

Compare like-for-like: same loan amount and the same term, then look at the APR rather than the headline interest rate. A loan with a lower interest rate but heavy fees can have a higher APR than one with a slightly higher rate and no fees — and the APR tells you which actually costs less over the full term. The one caveat is that APR assumes you keep the loan for the entire term; if you’ll refinance or sell early, a low-fee, slightly-higher-rate loan can win even when its APR looks worse.

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