📈 APR Calculator
Note: Calculations are performed in your selected currency. The final result is an estimate.
How often interest is calculated and added to the loan balance.
How often you make payments.
📘 How This Accurate APR Calculator Works
This calculator determines the true Annual Percentage Rate (APR) of a loan, which is the standardized way to compare loan costs. Unlike simple interest rate calculators, APR includes both the interest rate and most fees (like origination fees, points, etc.) to give you the total cost of borrowing expressed as a yearly rate.
The Formula & Calculation: The APR is found by solving for the discount rate that equates the present value of all future loan payments to the amount of money you actually receive (the loan amount minus any fees). This is done numerically using a method called the Newton-Raphson approximation to find the Internal Rate of Return (IRR).
Key Variables:
- Loan Amount: The principal amount borrowed.
- Nominal Rate: The advertised interest rate before compounding.
- Fees: Upfront costs added to the loan's total cost.
- Compounding Frequency: How often interest is calculated on the outstanding balance.
- Payment Frequency: How often you make payments towards the loan.
❔ Frequently Asked Questions
What is the difference between interest rate and APR?
The interest rate is the cost of borrowing the principal loan amount. The APR (Annual Percentage Rate) is a broader measure of the cost of borrowing, as it includes the interest rate plus certain fees (like origination fees, closing costs for mortgages, etc.) associated with the loan. APR is generally higher than the interest rate.
Why is my APR higher than my interest rate?
Your APR is higher because it incorporates the total cost of the loan, not just the interest. If your loan has upfront fees, those costs are effectively spread out over the loan term and added to the interest cost, resulting in a higher APR.
What fees are included in the APR?
APR typically includes most upfront fees that are required to get the loan, such as origination fees, processing fees, underwriting fees, and discount points. It usually does not include variable costs like late payment fees, appraisal fees (if you shop around), or title insurance.
Is a lower APR always better?
Generally, yes. A lower APR means the total cost of the loan is lower. However, you should also consider the loan term. A slightly higher APR on a shorter-term loan might cost you less in total interest than a lower APR on a much longer-term loan. Always compare the total cost of loans.
How does compounding affect APR?
Compounding frequency has a significant impact. The more frequently interest is compounded, the more interest you will pay, which raises the effective APR. For example, a 5% rate compounded monthly will have a higher APR than the same rate compounded annually.
Is this APR calculation accurate for all loan types?
This calculator provides a highly accurate estimate for standard installment loans (personal loans, auto loans, mortgages with fixed fees). For more complex products like credit cards (which have variable APRs) or loans with balloon payments, a different calculation may be needed.