Find the true annual percentage rate (APR) of a loan once fees are included, so you can compare offers with different interest rates and charges on an equal footing.
APR versus interest rate
The interest rate is the cost of borrowing the principal. The annual percentage rate (APR) also includes required fees, spread over the life of the loan, so it shows the true yearly cost. In the U.S., lenders must disclose the APR under the Truth in Lending Act, which makes it the best number for comparing offers.
How APR is calculated
Your monthly payment is based on the full loan amount at the stated rate. But if fees are deducted upfront, you effectively receive less money while making the same payments. The APR is the rate at which the payments exactly repay the amount you actually received:
Amount received = Payment × (1 − (1 + APR/12)−n) ÷ (APR/12)
There is no simple formula to solve this for APR, so the calculator finds it by trial and improvement, just like lenders' software does.
Worked example
A $10,000 loan at 8% for 36 months has a payment of $313.36. With $400 in fees, you effectively receive $9,600 but repay the same $313.36 a month. The true APR is about 10.80%, nearly 3 points higher than the stated rate.
Comparing two offers
Offer A: 8% with $400 in fees (APR about 10.8%). Offer B: 9.5% with no fees (APR 9.5%). Offer B is cheaper despite the higher rate. Fees matter most on short loans, because they are spread over fewer payments.
Frequently asked questions
Is APR the same as APY?
No. APR is used for borrowing and does not include compounding. APY is used for savings and does. See the APY calculator.
Does a mortgage APR include everything?
It includes many lender charges and points, but not every closing cost, such as some title and appraisal fees. Compare full Loan Estimates as well.
Related tools
Results are estimates for planning and education only. They are not financial, tax, legal or medical advice. Check important numbers with a qualified professional.