APR (Annual Percentage Rate) is the true yearly cost of a loan expressed as a percentage. It includes the nominal interest rate plus any additional fees and charges, making it a more accurate measure of borrowing cost than the interest rate alone.

How is APR different from interest rate?

The interest rate is the cost of borrowing the principal only. APR includes the interest rate plus additional costs like origination fees, closing costs, and other charges spread over the loan term. APR is always equal to or higher than the interest rate.

Why is APR important when comparing loans?

APR provides a standardised way to compare different loan offers. A loan with a lower interest rate but high fees may actually cost more than a loan with a slightly higher rate but fewer fees. APR reveals the true cost.

APR Calculator — Annual Percentage Rate

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Fees as % of Loan 0%

What is APR?

APR (Annual Percentage Rate) represents the true yearly cost of borrowing money. It includes the nominal interest rate plus any mandatory fees and charges, spread over the loan term. Lenders are required to disclose APR to help borrowers compare loan offers.

APR vs Interest Rate

Interest Rate: The cost of borrowing the principal only, expressed as an annual percentage.
APR: Includes the interest rate PLUS fees (origination, closing costs, points, etc.) — always ≥ interest rate.
When APR = Rate: This means there are zero additional fees on the loan.

How APR is Calculated

Step 1: Compute monthly payment using the nominal interest rate.

Step 2: Add all fees to the loan amount to get the "financed amount".

Step 3: Find the rate that makes the present value of monthly payments equal to Loan Amount − Fees (i.e. the net amount received).

This is solved iteratively using Newton's method to find the effective monthly rate, then converted to an annual rate: APR = monthly rate × 12.

How to Use

Loan Amount: The total amount borrowed.
Interest Rate: The nominal annual rate quoted by the lender.
Loan Term: Duration of the loan in years.
Total Fees: All upfront fees and charges (origination, closing costs, etc.).

Common Fees Included in APR

Origination fees
Closing costs
Discount points
Mortgage insurance premiums
Broker fees

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